Axis Bank Ltd (Axis Bank) reported PAT at Rs 1,154 crs vs Rs 1,277 crs in Q4FY12, in line with expectations.

- Loan growth remains healthy YoY; however softens sequentially
The bank’s advances grew 29.8% YoY to Rs 171,146 crs on the back of 50.2% YoY and 8.0% QoQ increase in retail advances, as a result of which retail assets constitute ~24% of the total advances as compared to ~20% in Q1FY12. Management continues to expect loan book to grow ahead of overall industry growth mainly aided by the retail segment. We have considered 19.4% and 21.1% growth for FY13E and FY14E.

- NIMs decline on QoQ basis
Net Interest Income increased by 26.4% on YoY basis and 1.57% on QoQ basis to Rs 2,180 crs in Q1FY13. Higher growth in interest expended outpaced the growth in interest income which resulted in decline in the bank’s NIMs. Net Interest Margin of the bank declined to 3.37% in Q1FY13 compared to 3.55% in Q4FY12. Management expects the pressure on NIMs to reduce going forward as funding continues to remain a challenge in the near term. We expect NIMs to decline by 10 bps to 3.2% in FY13E and then remain stable at 3.2% for FY14E.

- CASA ratio continues to decline
CASA ratio in Q1FY13 declined by 240 bps and 150 bps on QoQ and YoY basis respectively. CASA ratio stood at 39.1%. CA deposits increased only 8.5% YoY whereas on QoQ basis it declined 14.2%. However, strong traction in SA deposits (+23% YoY, +2% QoQ) led the CASA deposits to grow 16.9% YoY.

- Asset quality deteriorates: Cause of worry in near term
Asset quality disappointed with gross NPAs and net NPAs at 1.06% and 0.31% respectively, as compared to 0.94% and 0.25% respectively in the previous quarter. Sluggish recoveries, as compared to the previous two quarter, resulted in 15.8% QoQ increase in Gross NPA and 28.0% QoQ increase in Net NPA. Restructured book stood at Rs 3,827 crs or 2.24% of outstanding loans (vs 1.8% in Q4FY12) and 1.95% of customer assets (vs 1.58% in Q4FY12).