Axis Bank - Asset quality trends encouraging; NIM expansion key to drive RoEs further up - ICICI Securities

Axis Bank's credit cost at <60bps in Q4FY22 leads to earnings beat. Sharp decline in stress pool (net NPA + restructured + BB & below pool) to 2.33% (vs 2.9% QoQ) too is encouraging. Non-NPA provisioning buffer of 1.77% against stress pool reassures moderating credit cost trajectory. However, key to 16-18% RoE trajectory will be NIM improvement (levers being asset mix change, deployment of excess liquidity, scale-up of low-cost deposits, and gradual decline in low-yielding RIDF investments). Operating profit growth of 13% YoY / 5% QoQ missed expectations. NII growth at 17% YoY / 2% QoQ was a tad below expectations as NIMs declined 4bps QoQ (to 3.49%) and advances growth remained at 15% YoY / 6% QoQ. With cost to assets remaining elevated at 2.3% and continued investment in growth and franchise build-up, management refrained from reiterating its earlier guidance of cost/asset ratio of 2.2% by the exit quarter of FY23. Maintain BUY with an unchanged target price of Rs1,050.

Key risks: 1) Elevated opex offsetting improvement in operating performance. 2) Citibank's consumer business acquisition will not be financially accretive in the immediate term. Also, hit on net worth (due to goodwill amortisation) and CET-1 (due to capital allocation) will make equity raise imminent. 3) Retention of an acquired credit card and deposit customer base will be key.

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 Q4FY22 ResultUpdate ICICISecurities