AXIS BANK

Company Profile:
Axis Bank was the first of the new private banks to have begun operations in 1994, after the Government of India allowed new private banks to be established. The largest and one of the best known Financial Institutions of the country, UTI has promoted Axis Bank. The Bank's Registered Office is at Ahmedabad and its Central Office is located at Mumbai. Presently, the Bank has a very wide network of branches and it has one of the largest ATM networks in the country. The Bank has strengths in both retail and corporate banking and is one of the most technology driven banks in the country.

Financial Position:
For the first quarter of the FY'09 (ending 30th June, 2008), Axis Bank reported a stellar set of numbers with the net income growing up by 81.9% at Rs 1435.2 crore and the net profit registered a growth of 89% yoy to Rs 330 crore (including depreciation on bank's investment portfolio of Rs 225.2 crore) compared with Q1FY08.

This is excellent growth by any standards and we expect this momentum to continue in the next few years. Its NII (Net Interest Income) grew by 93% yoy in the current quarter to Rs 810, due to credit growth and improvement in NIMs (Net Interest Margins). On a sequential basis there has been a decline in the NIMs mainly on account of rising cost of funds and lower proportion of demand deposits in Q1 as compared to the last quarter. Asset growth has been strong across all the broad segments including retail, corporate and SMEs. Retail assets have grown by 52% yoy to Rs 14,638 crore, which constitutes 59% of the housing loan. The total net advances grew by 48% yoy to Rs 61,160 crore. The demand deposits constitute 40% of total deposits. The fee income during the quarter has grown by 80% to Rs 484 crore, particularly in the capital markets and corporate banking. Trading income has also grown during the quarter amounting to Rs 52.78 crore. Total investments have grown by 34% yoy r ising to Rs 35,718 crore. Axis Bank has witnessed a sharp increase in NPAs (Non performing Assets) as the net NPAs% has grown from 0.36 in Q4FY08 to 0.47 in Q1FY09.

Investment Positives:
Rapid growth in the bank's core business.
In the current quarterly report Axis Bank has shown great strength with increase in NIIs, net advances and fee income.
A dominant player in handling debt issues.
Axis bank has a wide network. It has added another 42 branches and extension counters and 140 ATMs during the quarter making the total to 713 branches and 2,904 ATMs. It has increased its coverage covering 433 centers.
Progressive globalization and achieving international standards.
Axis Bank adopts Misys tech to support growth in derivatives and boost risk management.

Concerns:
NPAs are growing. But its level of NPAs is below 1 %.Also among the new private banks Axis has the least exposure to the retail segment and this cushions against the bad debts.

Risk associated with the financial sector due to increase in the rate of interest. This is a real threat but the results for this quarter are still excellent considering that we saw the worst interest rate scenario in the last few months. Going forward we expect interest rate to soften.

Valuation:
Axis Bank has shown a strong growth in income and profits during a period which has been tough for all financials. The Bank is expected to have an EPS of around Rs 40 per share for FY09. At CMP of Rs 697.60, it trades at a P/E of over 15.75, which is very attractive. The PEG ratio ( PE/growth in NP) comes to a mere 0.18 which shows good scope for appreciation. The stock has corrected appreciably from the high of Rs 1150 earlier this year. We recommend stock as an excellent investment in the beaten down financial space with a target price of Rs 900.