Axis Bank Q1 preview: 15% growth in NII seen, exposure to stressed assets eyed

Analysts at Prabhudas Lilladher, for instance, peg the bank's profit at Rs 1,860.3 crore, up 165 per cent YoY. This would be a nearly 24 per cent rise sequentially

Improved loan growth and increased net interest income (NII) could aid private lender Axis Bank to report an over 150 per cent rise in the net profit for April-June quarter for the fiscal year 2019-20 (Q1FY20).  The bank, which reported a PAT of Rs 701.1 crore in the same quarter last year, is scheduled to report this year’s quarterly result on Tuesday, July 30.

Analysts at Prabhudas Lilladher, for instance, peg the bank’s profit at Rs 1,860.3 crore, up 165 per cent YoY. This would be a nearly 24 per cent rise from the sequential profit of Rs 1,505.1 crore reported in the March quarter of previous fiscal (Q4FY19).

“Core performance for Axis Bank will continue to improve with likely NII growth of nearly 15 per cent YoY and pre-provision profit (PPOP) growth of nearly 22 per cent YoY,” they wrote in their result preview note.

Analysts at Sharekhan, however, expect a nearly 19 per cent rise in the NII at Rs 6,138 crore. The bank reported NII of Rs 5,166.8 crore in Q1FY19 and Rs 5,705.6 crore in the quarter ended March, 2019.

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The bank’s stock has outperformed the benchmark indices over the past year at the bourses by rising 28.4 per cent during the period under review, as against a 1 per cent rise in the S&P BSE Sensex. The S&P BSE Bankex rose 6.34 per cent during the same period.

ADVANCES AND SLIPPAGES

A pick up in corporate and retail loan growth during the recently concluded quarter, analysts say, could further help the bank register better-than-industry-average loan book. The lender’s loan book is estimated at Rs 5.05-lakh crore, up 14.4 per cent, from Rs 4.41-lakh crore clocked in the corresponding quarter of the previous fiscal (Rs 4.94-lakh crore in Q4FY19).

“Traction in advances is seen improving 15 per cent YoY to nearly Rs 5.07-lakh crore led by focus on high yielding retail and MSME loans… A 20 bps cut in marginal cost of lending rate (MCLR) is negative, but focus on high yielding retail and SME loans is expected to mitigate impact of the MCLR cut, keeping margin stable at 3.4 per cent QoQ,” analysts at ICIC Securities wrote in their earnings preview note.

Analysts at Prabhudas Lilladher expect Axis Bank’s gross non-performing asset (GNPA) ratio to reduce by 126 basis points YoY, but come flat sequentially at 5.26 per cent. It was 6.52 per cent in Q1FY19 and 5.26 per cent in Q4FY19.

KEY MONITORABLES

According to analysts at HDFC Securities, investors should watch out the bank’s exposure to stressed non-bank finance companies (NBFCs) and real estate companies, if any, along with recoveries from written-off accounts.

“Among other things, movement in stressed assets including the ‘BB’ and below rated book should be watched,” they said. The analysts expect a modest 6 per cent rise in PPOP after factoring in a 12 per cent rise in operating expenditure and a 3 per cent dip in other income.

“No material exposure, however, towards IL&FS, ADAG group, DHFL, etc. could help the bank contain slippages, leading to lower credit cost of 46 bps,” say analysts at ICICI Securities.

Provisions for the bank, therefore, are pegged at Rs 2,498.7 crore, down 25 per cent YoY, from Rs 3,337.7 crore in Q1FY19.