Axis Bank Q4: Growth accelerates but sustainability is key, say analysts

Axis Bank Q4 Analysis: Axis Bank shares were trading in a narrow range on Wednesday, a day after the lender posted a solid earnings report card for the March quarter. At the bourses, the scrip traded between Rs 688-Rs 713 (-1.5 per cent to 2 per cent) on the BSE relative to Tuesday's close of Rs 699 apiece. The stock eventually ended 1.2 per cent higher at Rs 708 apiece as against a 1.6 per cent gain in the benchmark S&P BSE Sensex.

Lauding the bank for its prudent efforts towards stabilising the asset quality concerns, analysts now believe sustainability of the trend would hold the key for further growth, especially when the second wave of Covid-19 looks to derail the economic recovery.

Axis Bank on Tuesday reported gross non-performing assets (GNPAs) and net NPAs (NNPAs) of 3.7 per cent and 1.05 per cent in Q4FY21, down from 4.55 per cent and 1.19 per cent (pro forma) in Q3FY21, respectively, given lower slippages (Rs 5,300 crore) and higher write-offs (Rs 5,550 crore). Further, the bank's cumulative Covid-related provision stood around Rs 5,010 crore (0.8 per cent of loans) in addition to standard/weak asset provisioning of another 1 per cent of loans. 

This interim provisioning, Edelweiss Securities believes, will cushion the lender and "seed the possibility of material write-backs". This renders Axis as one of the likely earnings growth leaders as unwind of excess provisioning starts, it says.

Analysts also believe Axis Bank’s stressed pool (BB & below book), which saw restructuring requests for just 0.3 per cent of loan book, is beginning to exhibit signs of stability at 2 per cent of loan book. However, the management stated that demand resolutions for retail portfolio were at 98 per cent (above pre-Covid levels), while cheque bounces, albeit steadily improving, are still marginally above pre-Covid levels. 

Against this backdrop, Emkay Global thinks that while the bank would look at accelerating growth, key risks to the proposition include slower growth or higher NPA formation due to Covid-induced disruption and returning of management instability.

"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," added analysts at HDFC Securities.

Lending further support to the bullish sentiment was the lender's healthy growth in loan book. The bank posted strong growth momentum with 7 per cent QoQ and 9 per cent YoY loan growth coming across segments – retail 5 per cent QoQ/10 per cent YoY, SME 9 per cent QoQ/ 13 per cent YoY and corporate 9 per cent QoQ/ 7 per cent YoY. Management highlighted that retail (secured) disbursements have crossed pre-covid level and traction is likely to sustain.

On the liability front, deposits were up ~8 per cent sequentially, led by 13 per cent QoQ growth in CASA deposits; thus, the CASA ratio improved to 45 per cent. 

With healthy business growth metrics in place, JM Financial opines that Axis Bank should start FY22E on a strong footing aided by strong loan and deposit growth momentum and asset quality normalisation followed by credit costs moderation.

"We believe that large private banks including Axis bank are well poised to capture market share given that corporates have consolidated their banking relationship with top banks and given that digital capabilities in retail credit delivery (key loan book driver and PSBs/ NBFCs), which cater to self-employed segment, would take time to come out of the current asset quality cycle. Encouraging collection rate; predominant presence in salaried segment within retail and higher exposure to better rated corporate further provides conviction on asset quality. We believe the bank to bounce back in terms of return ratio in FY22 as it prepones provision and builds strong contingency buffer. We model RoA of 1.4 per cent/1.5 per cent in FY22/23," said Phillip Capital.  

Those at Edelweiss Securities note that as Axis's performance has been volatile on the asset front despite significant liability gains, overdue retail/SME accounts and performance of corporate assets will be keenly monitored going forward

Source: Brokerage reports