Axis Bank - Taking it on the chin - Q4FY20 Result Review - HDFC Securities

AXSB's 4Q operating performance was in-line with estimates, however high COVID-19 related provisions resulted in an unexpected loss. The creation of significant provision buffers in uncertain times is desirable. While the systemic fallout of COVID-19 (slower growth and higher stress) will impact AXSB, more than adequate CRAR, significant provision buffers, a fairly granular liability base (benefiting from polarised deposit flows) and the strategic re-orientation underpin our positive stance. Maintain BUY with a TP of Rs 541 (1.5x FY22E ABV+ Rs 22 for subs).

Asset quality: GNPAs were stable at Rs 302bn (4.86%), as a result of lower slippages (2.8% ann., -184bps QoQ). The fall in slippages was broad-based (corp: -52.7%, retail: -3% and SME: -32%). Adj. for technical slippages, 84% of corp slippages were from pre-identified stress. It is noteworthy that GNPAs were 11bps lower due to the standstill classification of a/cs. AXSB, like its peers will see higher slippages on a/c of COVID-19, particularly from SME loans (~10% of the book vs. ~3% for ICICIBC, for e.g.) and the corp healing cycle will be extended. We model slippages of ~3.2% over FY20-22E.

Deposit traction: Deposits registered a ~17/8% rise, with faster term deposit growth at 23/8%, w/w retail TDs grew at 27/7%. CASA (41.2%) growth at ~8% QoQ was slower than expected, esp. in comparison with some peers. AXSB should benefit from the increasing polarisation in the deposit ecosystem - a positive in the current environment.

Provisions jump: Provisions increased 2.9/2.2x YoY/QoQ to Rs 77.3bn, much higher than expected, with a 3.8/1.4x increase in LLPs to Rs 42bn (~3% of loans). Std. asset prov. were Rs 13.38bn of which ~Rs 4.75bn pertained to the RBI's Jun-19 circular. A further ~Rs 7bn pertained to overdue a/cs as at 1st Mar-20, of which mandated provisions were just Rs 730mn (RBI's 17-Apr-20 circular). The remainder was largely towards COVID-19 related provisions. Despite high existing provision levels (PCR at 69% and contingent provisions at ~20% of GNPLs), we factor LLPs at ~2% over FY21-22E.

Management commentary on COVID-19: 10-12% of the borrowers (a/c for 25-28% of loans) opted for the moratorium as at 25-Apr-20. Most retail borrowers were being offered moratoriums on an opt-out basis. As permitted by the RBI, AXSB will offer moratorium only to NBFC-MFIs (on a cases to case basis). AXSB made excess provisions as per its base case scenario (expected impact to the order of a once in a 7 year event).

Shares of AXIS BANK LTD. was last trading in BSE at Rs.438.85 as compared to the previous close of Rs. 455.55. The total number of shares traded during the day was 2088570 in over 38526 trades.

The stock hit an intraday high of Rs. 448.7 and intraday low of 427.5. The net turnover during the day was Rs. 916502208.

Source : Equity Bulls

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