Buy Axis Bank; target of Rs 1810: IIFL

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Axis Bank reported yet another quarter of strong performance, as net profits increased by 38%. This came ahead of market consensus and our estimates. Robust YoY loan growth of 36% and high and stable NIM of 3.7% drove strong net profits for the quarter. Expectedly, fee income growth remained sluggish and credit costs remained high. Despite this, net profit growth accelerated sequentially.?
?We believe robust demand for corporate loans and increase in LDR, enabling some sequential improvement in NIM, would sustain 30%+ net profit growth during 2HFY11. Increase in lending rates and higher CASA levels would offset the effects of higher deposit cost in 2HFY11. Our base case assumes that the current trend in loan loss provisions (LLP) would sustain. An improvement in this trend would likely yield upside to our and consensus earnings expectation.?

?We believe the strong momentum is likely to sustain in 2HFY11, driven by robust demand for wholesale loans and likely increase in LDR, thereby enabling NIM improvement. We maintain our earnings estimates for now. We raise our target price to Rs 1810 based on 3.3x FY12ii P/B. We retain BUY

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