Monday, August 8, 2011

Axis Bank - Buy, Sell, or Hold, Based on Q1 & the Steep Fall?

Axis Bank Ltd (BSE: 532215, NSE: AXISBANK), India’s third largest private sector bank by revenue, has delivered good returns to investors during some time-frames. Anyway, what is the outlook now after first quarter results and the steep correction in the market as well as the stock?

Axis Bank’s Q1 revenue has soared year-on-year from Rs. 4326.37 crore to Rs. 6049.27 crore, which is a robust 39.82% jump. The quarter-on-quarter growth is from Rs. 5817.06 crore, which is a modest 4% increase.

The year-on-year Q1 net profit at Axis Bank has jumped from Rs. 741.88 crore to Rs. 942.35 crore, which is a healthy 27% jump. However, sequential profit has dipped from Rs. 1020.11 by 8.25%, exposing strong ongoing headwinds.

Axis Bank's net profit margin (NPM) of the core business slipped on an year-on-year basis, dipping from 22.31% to 19.30% now, but which is still better than most peers.

Other income of Axis Bank which also maintained YoY growth, relates to gains from securities transactions, commission earned from guarantees/letters of credit, fees earned from providing services to customers, selling of third party products, and ATM sharing fees.

Axis Bank's Net NPAs degraded marginally to 0.31%, from 0.26% in the previous quarter.

Axis Bank's Return on Assets slipped from 1.81% to 1.61% sequentially, and marginally from 1.63% on an year-on-year basis. Return on Equity for FY’11 was 17.84%, which is healthy.

Current valuations of Axis Bank at 2.65 times the book-value is not very safe, and new investors should wait for the current deep correction in banking sector stocks to complete, to enter this scrip, carefully watching out for slippages in its core strengths of RoA, NPAs and NPM.

For existing investors of Axis Bank, it is a ‘sell’ or ’hold’, depending on the entry price, as the current valuations are high.

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