Axis Bank net grows 71% in Q4 despite provision for derivatives

Axis Bank has reported a 70.6% increase in net profit during the fourth quarter of 2006-07 to Rs 361.4 crore mainly due to a steady rise in interest and fee income. The increase in profits during the fourth quarter is despite non-tax provisions more than doubling to Rs 164.2 crore on account of provision of Rs 72 crore for mark-to-market losses on six derivatives transactions and a Rs 20 crore provision for depreciation in its credit-linked notes portfolio. During 2007-08, the bank’s net profit rose 62.5 per cent to Rs 1,071.0 crore as against Rs 659.0 crore during the previous financial year. The private bank ended the last financial year with a capital adequacy ratio of 13.7% compared with 11.6% in 2006-07.

The bank’s interest income soared 89% to Rs 828.4 crore during the fourth quarter of 2007-08 as net interest margins went up to 3.9% during January-March this year compared with 2.9% in the same period last year. The rise was attributed to an increase in yield on advances and lower cost of funds, thanks to the focus on current and savings account (CASA) deposits. The bank’s total deposits rose 49% to Rs 87,626 crore, while CASA resources grew 71% to Rs 40,027 crore.

At a time when the industry saw 21% growth in advances, its net advances rose 62% to Rs 59,662 crore during 2007-08, with retail loans rising 52 per cent to Rs 13,592 crore at the end of March 2008. It has also announced a dividend of 60% for the year ended March 2008. The diluted earnings per share (EPS) were at Rs 31.3 compared with Rs 22.8 at the end of March 2007. At CMP of Rs 881, the stock trades a PE of 28x its FY08 earnings. We remain bullish on the bank’s growth prospects.