Axis Bank - FY21 Annual Report Analysis - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities and Mr. Deepak Shinde, Institutional Research Analyst, HDFC Securities

Stabilised franchise gets future ready

Having further stabilised both sides of the balance sheet during a year marred by a pandemic and lockdowns, Axis Bank's FY21 annual report points at a franchise that is selectively upping its tech investments (79% growth in spend over 24m), which is reflecting in its enhanced business productivity. With a stable stress pool at 3.1% of loans (FY20: 3.6%) and a prudent 2% provisioning buffer on standard loans, Axis Bank's asset quality is comfortable. On the back of its increasingly granular liability franchise, the bank is driving greater cross-sell and up-sell in its retail business (the share of premium deposits is up 150bps since FY20). We tweak our FY22 and FY23 earnings forecasts by 3% and 5% respectively to factor in the rising pricing power on both sides of the balance sheet. Maintain BUY with a revised TP of INR 825 (earlier INR 758).

Wholesale book continues to improve in a pandemic year: Axis Bank's wholesale book's asset quality continued to improve in FY21 with GNPA at 6.4% (FY20: 9.1%) despite the pandemic and lockdowns. With the bulk of impairment recognition from the legacy book over, reduction in the watch list pool, and incremental book built on high-rated corporate entities, we expect incremental stress to normalise, going forward.

Fee yields continue to moderate; retail contribution improving: Axis Bank's fee income yields continued to moderate in FY21, standing now at 0.7% of business vs ~1.2% in FY13. On the other hand, the bank's retail fee contribution to the overall fee income has remained steady at ~62%, despite a steep drop in disbursements in H1. The distribution income productivity reverted to mean with strong growth of 22% YoY.

Granularity on both sides of the balance sheet: Axis Bank continues to improve its granularity on total exposures as well as deposit concentration (in terms of the top-20 accounts). While the top-20 exposures' concentration increased during the year, incremental sanctions (~94%+) remain skewed towards high-rated corporates (AA and above; we believe this to be a conscious effort on the part of the bank). On the liabilities side, the share of premium accounts in ETB SA book rose from 35.5% in FY20 to 37% in FY21. Salary deposits grew strongly by 25% YoY (overall SA growth of 18% YoY).

Investments in technology, building on FinTech partnerships: Axis Bank has upped its efforts towards upgrading technology and enhancing its digital capabilities. It has increased its technology-related operating expenses and capital expenditure by ~79% in the past couple of years. Further, it has adopted a cloud-first approach, with over 50 of its initiatives in the retail segment on the cloud platform (fully cloud-based LMS already implemented). The Flipkart-Axis co-branded credit card has crossed 1mn+ customers, while its PSP App has over 186mn users.

Shares of AXIS BANK LTD. was last trading in BSE at Rs.770.8 as compared to the previous close of Rs. 753.65. The total number of shares traded during the day was 445082 in over 13593 trades.

The stock hit an intraday high of Rs. 772.8 and intraday low of 755.05. The net turnover during the day was Rs. 341467859.

Source : Equity Bulls

Keywords