Axis Bank - Q4FY22 Result Update - Mixed quarter; NIM the key monitorable - BUY

Mr. Gaurav Jani - Research Analyst at Prabhudas Lilladher.

Quick Pointers:

- Miss on PPoP led by softer margins while asset quality improved QoQ

- NIM recovery and opex benefits might take longer to materialise

Axis bank earnings were mixed as operating income missed estimates by 4% due to weaker margins although PAT was a beat at Rs41.2bn (PLe: Rs39.8bn) driven by lower provisions (due to stronger recoveries). Loan growth was a tad higher led by retail, however the management was a bit cautious on credit growth in FY23E owing to a tougher global environment. The likelihood of reaching the guided RoE of ~16% seems lower in the medium term as margin recovery could be protracted and opex may remain elevated. However, balance sheet strength and improving asset quality provide some cushion. Valuation discount to ICICIBC might widen to 20-25% (currently 16%) unless NIM improves. With RoE of 14.2% in FY24E, we maintain multiple for AXSB at 2.3x FY24E ABV though cut TP from Rs975 to Rs940. Maintain BUY.

Q4FY22 - Miss on operating profit though asset quality better: NII was lower at Rs89bn (PLe Rs91bn) led by softer NIM at 3.8% (PLe 4.0%). Loan growth was 15% YoY (PLe 13.5%) mainly led by retail. Deposits grew by 17.7% YoY as average CASA growth of ~19%. Other income was a tad better at Rs42bn as fees were higher. Opex was Rs65.8bn with staff cost being softer while other opex was higher. Led by weaker NII, PPoP dipped 6% YoY to Rs64.7bn (PLe Rs67.3bn). Due to higher recoveries, asset quality was strong with GNPA/NNPA (calc.) being lower at 2.8%/0.7% (PLe 3%/0.9%). Hence provisions were Rs9.9bn (PLe Rs13.9bn). PAT was Rs41.2bn (PLe Rs39.8bn).

Business growth led from retail and SME: Credit accretion was largely led by retail (+21% YoY) while SME too was strong at 26% YoY. Corporate growth was muted at 4% YoY. Retail growth was attributable to HL, LAP, rural, SBB and CC. Endeavour would be to penetrate further in the semi-urban rural areas and grow the higher yielding retail book. There was no growth guidance in particular but the management sounded more circumspect than last time in terms of FY23E growth. On liabilities, CASA traction continues and focus remains on granularity. For SA deposits, bank has been moving towards acquisition of premier customers, which would aid in ticket size growth.

Margin recovery and opex reduction could be slower: Margins once again disappointed owing to pricing pressure. While it was suggested earlier that NIM expansion would hinge on shifting from investments to higher yielding loans, the pace has been slower which could lead to a protracted margin recovery. Moreover, earlier guidance to reach 2% cost to assets in FY23 stands deferred as the bank expects higher expenses in the near to medium term.

Asset quality was strong: While gross slippages were higher Rs39.8bn (mainly retail), recoveries were stronger leading to negligible net slippages that resulted in better asset quality. Restructured pool declined QoQ from 100bps to 85bps while PCR on the same is 24%. The BB & below pool further reduced QoQ from 1.7% to 1.3%. Buffer provisions are maintained at Rs50bn or 70bps.

Shares of Axis Bank Limited was last trading in BSE at Rs. 728.70 as compared to the previous close of Rs. 779.95. The total number of shares traded during the day was 987355 in over 35723 trades.

The stock hit an intraday high of Rs. 769.00 and intraday low of 725.00. The net turnover during the day was Rs. 733293637.00.

Source : Equity Bulls

Keywords

AxisBank INE238A01034 PrabhudasLilladher Q4FY22 ResultUpdate