Axis Bank: First half 2016:

Axis Bank released its 2nd quarter results on 27th October 2015 and they reported a growth of 18% in the total income compare to first half last year. Like all other banks they have witnessed 17% rise in their interest expenses to source the funds. The net profits after taxes had gone up by 19% even though their provision and contingencies expenses had risen by 65%.

Looking at those results they look good and also tells you that the economy is slowing down which is reflecting in a big competition to source the deposits for the business. Many analyst had also raised eyebrows on the NPA’s. To look at the bigger picture, overall the gross NPA’s of all the banks in India were sitting at 10% in 2015. They are still expected to go up for the next three years and then slide down.

Comparing those figures with Axis Bank, we think the business is running as normal. The deposits have grown by 14% and their loan book by 23% and overall their balance sheet has seen a growth of 20% compare to last year same time which tells us that there is a strong demand of its products in the market.

Coming to the valuations, the expected return on equity for this year is 18% and is expected to go up to 19% in the year 2017 and 20% in the year 2018 on the analysts’ earnings expectations. For the year 2016 Axis bank had delivered what the analysts are expecting through it. We think it is trading at premium to its 2016 valuations, it is fair valued to its 2017 intrinsic value and is trading at discount to its 2018 valuations.

We do own Axis Bank in our Valueoperations fund portfolio and are holding our position in it.

Aziz Dodhiya is the chief investment officer for the Valueoperations fund.