Axis Bank: Margin blues

The Axis Bank stock lost 7 per cent today closing at Rs 487 mainly because the bank’s net interest margins for the December 2008 quarter were lower than expected. Besides, the news that the current chairman and CEO will be stepping down in August this year, though widely expected, had an impact on the share price.

Also the Axis Bank stock has had a strong run, rallying nearly 50 per cent from levels of Rs 377 in November to nearly Rs 570 earlier this week. That may have resulted in some profit taking.

Apart from the lower net interest margin, which came off to 3.12 per cent from 3.51 in the September 2008 quarter, the bank has posted a reasonably good set of numbers with a strong rise in fee incomes of 57 per cent y-o-y and which helped it post a rise of 35 per cent y-o-y in the operating profit.

With the share of cheaper current and savings accounts down to 38 per cent, the cost of funds increased to just under 7 per cent. That should settle down in subsequent quarters with liquidity pressures having eased. While the loan growth during the quarter has been strong at around 55 per cent y-o-y, this should taper off in the coming quarters and the management has indicated that for 2008-09, the loan growth should be in the region of 35-40 per cent.

In fact, the retail loan portfolio has shrunk compared with the September quarter. Delinquencies are under control with net non performing loans (npls) at 0.39 per cent though gross npls have risen slightly. Provisions have been lower, partly because the rules have been made more lenient. At current levels, the stock trades as around 1.5 times adjusted price to book value for 2009-10.