Thursday, January 10, 2008

Axis bank continue its robust growth

Axis bank once again has beaten analysts’ expectations on all boundaries by continuing healthy growth in the December 2007 quarter.

Although the difference in this quarter profitability is that, the profit came more from net interest income (core business) rather than non-interest income unlike in last several quarters.

Net interest income jumped by 91 per cent y-o-y to Rs 747 crore—this being the highest in the past four quarters—whereas advances and deposits grew by 50 per cent and 35 per cent respectively and also there was an increase in net interest margin (NIM).

Its NIM showed an increase by 63 basis points q-o-q and 91 basis points y-o-y to 3.91 per cent. This was because of a jump in profit on advances while CASA (current and savings account) was maintained at 45 per cent sequentially.

Although other income went up 74 per cent y-o-y to Rs 488 crore, but still it was lower than the 87 per cent growth reported in the September 2007 quarter.

There was an increase of 81 percent to Rs 348 crore in the bank’s fee income and trading profits were up 65 per cent to Rs 131 crore in Q3. All these factors are responsible for the doubling of operating profit to Rs 672 crore while operating expenses went up by 67 per cent.

Moreover, its net profit grew relatively slower at 66 per cent to Rs 307 crore as supplies and emergencies went up 290 per cent and a 68 per cent jump was recorded in tax provisioning. However, growth in net profit is still higher than previous three quarters and has been higher than expectations.

Axis Bank is comparatively resistant to the slowdown in the retail credit and high cost of funding. This is because other advances like corporate, SME (small and medium enterprises) and agriculture loans have grown faster than retail advances and retail credit’s share of 25 per cent has gone down from 28 per cent last year.

On Wednesday the stock closed 2.5 per cent higher on the bourses. However, at Rs 1,096, the stock has risen nearly 50 per cent in the last three months and trades at 4.2 times its FY09 estimated adjusted book value, and looks fairly valued.

In the December 2007 quarter iGate was able to counterbalance the 1.5 per cent q-o-q rupee appreciation through a tight check on its operating costs and enhanced volume and billing rates in areas such as ERP and data warehousing.

The US mortgage servicing business, which has been a drain on the company since the fourth quarter of last year, continued to do badly.

Therefore, its operating profit grew 15.8 per cent q-o-q in Q3 FY08, while its operating revenues rose 4.3 per cent q-o-q to Rs 209.3 crore. The rupee appreciation affected the top line growth by 2.2 per cent.

Nevertheless, iGate’s working profit margin rose 170 basis points q-o-q to 17.5 per cent in the last quarter. The stock gained about 1 per cent to Rs 401 on Wednesday.

In the September 2007 quarter too, the company had accounted a 260 basis points q-o-q growth in its working profit margin. Meanwhile, in Q3 FY08, iGate extended its revenues from North America and Asia Pacific on a sequential basis, which helped overall IT services revenues rise by 3.7 per cent q-o-q.

Also, the company was able to influence a 6.1 per cent q-o-q growth in onsite volumes, coupled with a 3.5 per cent q-o-q growth in onsite billing rates.

Though the company’s offshore part declined 100 basis points q-o-q in the last quarter, but senior management officials figured out that increased use of relatively less experienced employees helped keep direct costs under check.

The company management is having a positive point of view about the pricing environment and expects to grow revenues by 5-6 per cent sequentially over the next few quarters.

iGate promoters made an open offer through reverse book building at Rs 410 and now own 93.4 per cent in the company. The stock is expected to be delisted. Existing shareholders who were not able to take the shares can now take them at same price.

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