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Axis Bank + IDFC Results Preview – Citi

October 16, 2007

Axis Bank’s net profits increased 60%yoy, 17% ahead of expectations. Operationally, the results were strong too with pre-provisioning profits up an impressive 85%yoy. The bank continued strong growth, momentum in fees, strong asset quality and high profitability; though profits were boosted by new capital and bond gains.

AXBK’s loan growth remained strong, ahead of expectations at 53%yoy, despite a lacklustre 22% industry growth and a relatively modest 27% increase in retail loans. Continued fee momentum also surprised on the upside with a 59%yoy growth.

Axis Bank’s overall asset quality remained comfortable as NPL ratio declined to 1.1% of loans from 1.5% in 2Q07. Axis Bank is expected to report an EPS of Rs 30.02, 36.96 and 47.95 for FY08, 09 and 10 respectively. Citi maintains a hold though the stock is already trading above its target price of Rs 675.

IDFC:
IDFC’s 2Q08 net profits rose 25%yoy in-line with expectations. Key positives were improvement in NIMs, strong loan growth and fee momentum. Asset management returns and fund raising plans are also ahead of expectations and could provide valuation upsides.

IDFC’s NIMs increased to 320bps (+40bps qoq) driven by a favorable interest rate environment and helped by additional capital raising during the quarter.

Unrealized gains have increased to Rs3.24bn and provide earnings comfort. Management indicates that IRRs on its first PE fund are over 45%; expects contributions to performance fees from 3Q08 and plans a new fund launch in early FY09E – ahead of expectations and could drive valuation upsides.

IDFC is expected to report a fully diluted EPS of Rs 5.32, 6.36 and 7.88 for FY08, 09, 10 respectively. Citi maintains a BUY/medium Risk recommendation on the stock with a price target of Rs 140 [which the stock has already crossed].

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