As in the previous quarters, Axis Bank has reported good growth in Q4 of 2010-11, thereby boosting the overall performance. While its total income for 2010-11 has grown by 30%, its net profit has grown by 35%. However, like many other financial services companies, Axis Bank too came under margin pressure in the fourth quarter due to high inflation and rising interest rates.
Its net interest margin (NIM) in Q4 reduced by 37 basis points, compared with that in Q3. Consequently, the stock price fell from Rs 1,448 on April 21 (the day it declared its Q4 results) to Rs 1,235, a crash of 15%. But is this fall in NIM a serious threat to bring down the valuation of Axis Bank substantially?
Most analysts feel that the magnitude of this crash in such a short period is totally unwarranted and the market has over-reacted to this negative factor. "An increase in base rate by 75 basis points on May 5 should support its NIM and, in the future, NIM should stabilise at 3.25-3.5%," says Murali Gopal, banking analyst at Brics Securities.
Analysts also point out that the market has ignored the other positive aspects of Q4 like increase in loan growth (up by 37%), improvement in gross and net NPA ratio (from 1.09% and 0.29% in Q3 to 1.01% and 0.26%, respectively). This means a quality stock like Axis Bank is a good investment at the current valuations. However, keep in mind that the near-term headwinds remain (interest rates are expected to move up in coming months) and, therefore, invest in it only in a systematic manner.
Our Recommendation :
Axis bank gave the following returns to the investors -