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Maintain BUY on Axis Bank - Provision buffers strengthened (further) - HDFC Securities

Posted On: 2020-10-29 05:49:03

Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities

We maintain BUY on AXSB with a target price of Rs 616. AXSB saw strong operating profit growth, led by robust NII growth, a sequential rebound in core fees, and controlled operating costs. Even as we expect the bank to register a rise in GNPAs in FY21E, it has already built significant provision buffers, which will limit the need for incremental provisioning. Further, strength on the funding side (CRAR and deposit traction) will allow the bank to capture resurgent credit growth.

Asset quality trends: Reported GNPAs declined 85/54bps to 4.2%. Adjusted for the impact of the SC order, GNPAs were 4.3%. Overall collection efficiency improved to ~95% in Sept-20 and further to ~97% in Oct-20. The pool of BB and below-rated loans grew ~37% QoQ to constitute ~2.6% of loans, led by voluntary downgrades. The management expects to restructure ~1.6% of loans. We continue to build in a rise in GNPAs in FY21E to 5.3%.

Non-tax provisions remained elevated at Rs 45.8bn (+30.2/3.7%). In addition to specific provisions covering ~88% of GNPAs, AXSB held provisions of ~Rs 108bn (1.9%) including contingent provisions, provisions against anticipated restructuring (Rs 18.6bn), and COVID-19 related provisions of Rs 50.1bn. Together, these constitute a significant buffer to absorb future stress. Nevertheless, we continue to model LLPs of 1.7% over FY21-23E.

Deposit growth was relatively tepid at 8.8/1.2%. However, the bank saw strong CASA growth at 17.0/9.4%. Consequently, the CASA ratio rose to 44.2% (+308/331bps). This partly contributed to a significant fall in the CoF (-125/-36bps) to 4.4%. Post the recent fundraise, CRAR stood at 19.4%.

Loan growth came in at 10.5/2.7%. Sequential growth was led by the SME segment (+6%, albeit -1% YoY), which in turn was led by disbursals under the credit guarantee scheme (Rs 60bn disbursed). At 11.9/2.4, the bank's retail portfolio witnessed broad-based growth while its corporate portfolio grew 12.4/2.2%. Funding side capabilities will allow the bank to capture resurgent growth. We model a 13% loan CAGR over FY21-23E.

Shares of AXIS BANK LTD. was last trading in BSE at Rs.493.7 as compared to the previous close of Rs. 504.85. The total number of shares traded during the day was 1562834 in over 32531 trades.

The stock hit an intraday high of Rs. 516.25 and intraday low of 489.5. The net turnover during the day was Rs. 783969327.

Source: Equity Bulls

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