Stock Review: Axis Bank

IF quarterly numbers of private banks are anything to go by, the sector is on a growth track, despite rising interest rates. On the heels of HDFC Bank and YES Bank, Axis too has come out with decent numbers.

The bank managed to grow its balance sheet by 34.35 per cent in 2010-11. The management is committed to growing at 1.3-1.4 times of the industry in the current financial year too.

Axis has held on to net interest margins in a rather difficult quarter, a trend visible in other private banks, as credit growth has been robust.

Advances grew 36.48 per cent year-on-year, from 1,04,341 crore in FY10 to 1,42,408 crore in FY11. Net interest margin stood at 3.65 per cent in the year ended March 2011, compared to 3.75 per cent in the financial year ended March 2010, indicative of rising pressure.

While it's difficult to predict how interest rates will move, the management has indicated it will be comfortable with a margin band of 3.25-3.5 per cent.

However, this can be achieved only if the bank manages to grow the low-cost Casa (current account and savings account) deposits, are now 41 per cent of all deposits.

To leverage this segment, the bank is using branch expansion as a strategy. During FY11, it added 407 branches and 1,977 ATMs, taking the total count of branches to 1,390 and ATMs to 6,270.

The management has indicated that how net interest margins pan out in FY12 will largely depend on how it manages Casa growth and passes on higher interest cost to borrowers.

To protect profitability, the bank will have to pass on the increase in interest rates to borrowers, which may prove difficult if it intends to grow its books by 25 per cent in the current financial year.

While the bank has shown robust growth in all levers of profitability, what remains as an overhang is exposure to the infrastructure sector.

The bank has 14 per cent exposure to this sector. Analysts have been concerned about the bank's exposure to infrastructure and power sector, as both these are seeing some issues.