Axis Bank's asset quality remain stable with GNPA at 3.85% versus 3.7% QoQ (as per IRAC norms) led by write offs (Rs.34 billion versus 55.5 billion QoQ); however, slippage ratio remain high (4.2% vs 3.4% QoQ). BB & below book grew by 3% QoQ and restructured assets stood at 0.3% of customer assets lower than its peers are key positives during the quarter.
PAT grew by 94% QoQ led by lower provisions (down 20% QoQ). NII grew by 11% YoY led by decline in NIMs at 3.46% (3.56% QoQ). PPoP grew by 10% YoY (down 6.5% QoQ) led by higher operating expenses (up 33% YoY).
Commenting on the result review, IDBI Capital said, "With management change behind, strong capital in place and focus on secured retail portfolio, AXISB would see better revival in growth within the sector. With improvement in credit growth and better credit quality, we revised slightly earning upwards (FY23E ABV up 1%). We have a 'BUY' rating with new TP of Rs. 875 (earlier Rs.810) valuing it at 2.1x (earlier 2.0x) P/ABV FY23 as valuation difference with its peer (ICICI bank) expected to decline."
Key highlights and investment rationale
Credit growth improved led by across the segments: Credit growth improved to 12% YoY (9% YoY FY21) due to better growth across the segments. Retail portfolio growth improved to 14% YoY vs 10% FY21; corporate book grew by 8% YoY (1% QoQ). Retail disbursements for the quarter grew by 3.3X YoY. Retail book accounted for 54% of the net advances of the Bank. The corporate lending portfolio continues to shift towards better rated clients with 85% of corporate exposure now rated ‘A’ or better with 94% of incremental sanctions in Q1FY222 being to corporates rated A- and above. Deposits during the quarter grew by 16% YoY with CASA at 42% vs 42% QoQ. CASA+RTD now form 83% of deposits.
Asset quality stable; Restructured assets at 0.33%: Asset quality remain satble with GNPA (as per IRAC norms) at 3.85% vs 3.7% QoQ; led by write offs (Rs.34 billion). Slippage ratio increased to 4.2% (annualized) vs 3.4% QoQ due to second covid-19 wave impact. PCR (excluding technical write offs) declined to 70% vs 72% QoQ. BB & below book increased by 3% QoQ and restructured assets stood at 0.3% of customer assets lower than its peers are key positives during the quarter. Bank has prudently built up a cumulative provision (standard + additional other than NPA) translate to 2.05% of standard loans, which provides a little comfort. On an aggregated basis (specific+ standard+ additional + Covid), coverage ratio stands at 118% of GNPA as of Q1FY22.
NIMs declined sequentially; Cost to income ratio inched up: NIMs declined by 10bps QoQ to 3.46% led by interest reversal and product mix. Higher employee expenses (up 32% YoY) resulted in increase in cost to income ratio to 43.5% (vs 39% YoY).
Outlook: Management has proactively written off the stress assets (no sale to ARC) impacted by Covid-19. Post near term stress taking shape, we expect the book to normalize and improve thereon. Bank has one of the better liability franchises with strong CASA ratio at ~40% which suffices well in current environment.
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