Maintain BUY on Axis Bank - A good quarter; treading cautiously - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

Axis Bank reported an in-line operational performance with PPOP growth of 17% YoY, steady growth on both sides of balance sheet and gradual improvement in asset quality. The bank continues to build on its surplus provisions at ~2% of loans despite evidence of stability in the stressed pool. Loan growth continues to be driven by focus on high-rated corporates and mid-corporates on the wholesale side and ETB customers on the retail front. Conservative provisioning and likely speed bumps from the second wave of the pandemic are likely to defer credit cost normalisation to FY23E, despite healthy PCR (~72%). Maintain BUY with revised SOTP-based TP of INR758.

Good P&L performance with steady balance sheet growth: Axis Bank delivered a healthy operating performance with 15% YoY fee income growth, 17% YoY PPoP growth, balanced loan growth (9% YoY) and credit costs at 1.2% (adjusted for prudent provisioning for CBG portfolio). The bank continued its focus towards strengthening its granular liability franchise (average CASA at ~43%) driving down its cost of deposits (3.9%).

Stress pool beginning to stabilize with adequate provisioning: Axis Bank's stressed pool (BB & below book) is beginning to exhibit signs of stability at~2% of loan book, with restructured book at ~0.3% of loans (largely corporate). Provisioning remains adequate with PCR of 72% and surplus provisioning at ~2% of loan book. However, retail slippages surprised negatively (4% annualized) compared to total slippages (3.4% annualized).

Road to normalised credit costs key to re-rating: Axis Bank has been a laggard in terms of stabilizing its stressed pool and normalization in provisions compared to its peer, ICICI Bank. With emerging evidence of a steady stressed pool, we remain watchful of this trend. The stressed pool normalization, along with conservative provisioning and likely speed bumps from second wave of pandemic remain the key for normalization of credit costs and its return to steady-state profitability. Maintain BUY with revised SOTP-based TP of INR758.

Shares of AXIS BANK LTD. was last trading in BSE at Rs.707.85 as compared to the previous close of Rs. 699.3. The total number of shares traded during the day was 2104320 in over 29486 trades.

The stock hit an intraday high of Rs. 713 and intraday low of 688.25. The net turnover during the day was Rs. 1475164128.

Source : Equity Bulls

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