Axis Bank (AXSB IN) - Uncertainty on asset quality remains; margins surprise positively - CSEC Research

Uncertainty on asset quality remains; margins surprise positively

- Axis Bank's loan book registered a sluggish growth (10.1%YoY) to INR 3.73tn in 4QFY17. However, growth in retail segment was steady at 21.3% YoY. Sequentially the loan book showed a strong growth of 7.5%QoQ led by Retail (12.3%QoQ) & SME (13.8%QoQ). The share of Retail, SME and corporate was noted at 45%, 13.2% and 41.8% respectively.

- Growth in Retail segment (forming ~45%of loans) was led by Auto loans (35%YoY) and PL & Credit cards (32% YoY). The Bank had 3.3mn credit cards in force as of 4QFY17 (3.1mn in 3QFY17), making it the 4th largest card issuer in the country and capturing a market share of ~10.9% (10.6% in 3QFY17). Presently, 66% of outstanding corporate loans are to companies rated 'A' and above.

- The Bank has created a Watch-List which they believe could be the key source of future stress in the corporate lending book. The cumulative value of the accounts in the aforementioned list stands at INR 94.4bn (6.1% of corporate book) which reduced by 14.9%QoQ from INR 110. 9bn in 3QFY17 as it slipped to NPAs. Power and Iron & Steel, still remain the top 2 sectors and contributes about 67% of the outstanding watch list loans.

- Deposits grew (9%YoY) to INR 4.1tn as CASA increased (25.7%YoY) amidst increase in CA- 36.7%YoY and SA- 19.1%YoY. Share of CASA deposits increased by 383bps QOQ to 51.4% as of 4QFY17. Retail term deposits (forming ~30%) grew by 1.6%YoY.

Valuation: The stock is currently trading at P/BV of 1.8X FY19E. The concerns around weakening asset quality and outlook remaining uncertain, continued pressure on margins, weak growth trajectory paints a muted picture for the bank. Consequently, we arrive at our target price of INR 540, assigning a PBV of 1.9X on consensus estimate of FY19E and maintaining an OUTPERFORMER rating.

Risks: Deterioration in asset quality given the higher exposure to Infra & power and steel segments.

Shares of AXIS BANK LTD. was last trading in BSE at Rs.504.9 as compared to the previous close of Rs. 518.9. The total number of shares traded during the day was 610147 in over 7459 trades.

The stock hit an intraday high of Rs. 522.95 and intraday low of 503.3. The net turnover during the day was Rs. 310713266.

Source : Equity Bulls

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