Maintain BUY on Axis Bank - Conservatism hits earnings - HDFC Securities

Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities.

We maintain a BUY on Axis Bank with a target price of Rs 565. We have slightly reduced our earnings estimates, as we build slower loan growth, lower NIMs, and slightly higher provisions. Improved risk practices (post CEO change), a strong balance sheet (CRAR ~17.5%, PCR ~75%), and a strong liability franchise will hold the bank in good stead. Our constructive stance on AXSB ties in with our broad thesis that large private banks with strong balance sheets and deposit franchises will emerge stronger.

1QFY21 highlights: NII and PPOP growth were healthy at 19.5% and 15.8% respectively. PAT dipped 18.8% YoY to Rs 11.1bn. However, adjusted for the net impact of changes in accounting policy (NII reserve, fee recognition and provisions), PAT would have been Rs 16.3bn (+18.7% YoY).

Moratorium trends: Surprisingly, AXSB's moratorium (by value) dipped to 9.7% of loans (25-28% of loans in 4QFY20). This sharp drop is encouraging but odd. As per the management, borrowers representing 90% of the second moratorium formed part of the first moratorium, and 70-80% of the borrowers who had availed of the first one paid in June. The second moratorium was subject to stricter conditions. Moratorium trends will be keenly watched.

Asset quality: 21% of the gross slippages (1.6% ann.) were recognised as per the bank's credit and risk assessment criteria (technically not NPAs). 77% of corporate slippages were from the BB and below rated pool of loans. The pool itself shrank 14.4/1.7% to Rs 64.2bn (1.1% of loans). Downgrades into the pool were Rs 13.3bn. We factor in slippages of ~3.3% over FY21-22E.

Provisions were 15.8% higher, led by a 21.7% growth in LLPs to Rs 35.1bn. AXSB made COVID-19 related provisions of Rs 7.3bn in 1Q (total stock Rs 37.3bn). PCR increased 576bps QoQ to 74.8%. We build in elevated LLPs at 1.93% over FY21-22E.

Shares of AXIS BANK LTD. was last trading in BSE at Rs.446.2 as compared to the previous close of Rs. 433.8. The total number of shares traded during the day was 1437957 in over 20241 trades.

The stock hit an intraday high of Rs. 450.55 and intraday low of 438.65. The net turnover during the day was Rs. 639232895.

Source : Equity Bulls

Keywords