Subdued loan growth and flat net interest margin (NIM) could dull the September quarter earnings of Axis Bank, which is slated to report its July-September quarter earnings for the financial year 2019-20 (Q2FY20) this week.
Analysts, however, seem to be divided on the growth in net profit due to ambiguity over whether the bank would provide a one-time mark-down in its deferred tax asset (DTA) or would the mark-down be spread evenly over the financial year.
Consider this: Analysts at Nirmal Bang peg the PAT at Rs 2,186 crore, up 177 per cent year-on-year (YoY) if the mark-down is evenly spread in FY20. The profit, however, reduces to just Rs 49.5 crore, down 930 per cent, if the DTA is marked down in Q2.
In the June quarter of FY20, the private lender reported a PAT of Rs 1,370.1 crore. The same was Rs 789,6 crore in the September quarter of the previous fiscal. The net interest income (NII) came in at Rs 5,843.7 crore in Q1FY20, and was Rs 5,232 crore in Q2FY19. The private lender reported a revenue of Rs 9,712.4 crore in the previous quarter of the current fiscal.
So far in 2019, the bank has outperformed the benchmark indices at the bourses. The stock of the bank has advanced 15 per cent, as against an 8 per cent rise in the S&P BSE Sensex and S&P BSE Bankex.
Here is what brokerages expect from the July-Sept quarter earnings:
The brokerage expects the one-time DTA mark-down to hit earnings in the September quarter. It estimates the PAT to come in at Rs 162.4 crore, down 88 per cent sequentially.
“Incremental stress pool addition would be the key monitorable to assess the asset quality (in Q2),” their analysts wrote in an earnings preview note, adding, “Given it has created contingency buffer in Q1FY20, provisioning will lower QoQ”.
Assuming an evenly marking-down of DTA, analysts at Prabhudas Lilladher expect the private lender to report a PAT of Rs 1,578.3 crore, up 100 per cent YoY and 15 per cent QoQ.
The brokerage estimates provisions at Rs 3,043.3 crore for the quarter under review, up 4 per cent YoY, from Rs 2,927.4 reported in Q2FY19. Sequentially, provisions are likely to decline by 20 per cent from Rs 3,814.6 crore reported in Q1FY20.
"The credit cost could be at 2.35 per cent as the bank may look to enhance the provision coverage ratio (PCR). Furthermore, the bank could utilise the fresh capital of Rs 13,000 crore as a cushion against higher provisions," the brokerage noted.
ICICI Securities expect the growth in retail and micro, small and medium enterprises’ (MSME’s) credit book to support a nearly 16 per cent rise in NII.
“The bank's advances traction is expected at 15 per cent YoY to Rs 5.24 lakh crore largely led by retail and MSME segment. Margins are estimated at 3.44 per cent, which would lead to NII growth of 15.7 per cent YoY to Rs 6,052 crore,” they noted in the quarterly preview report.
The analysts, however, would watch out for the management’s commentary on “the stressed asset cropped up recently and delay or failure for resolution in the near term which could endure higher provisions in coming quarter”.
The gross non-performing assets (GNPA) are pegged at Rs 27,053 crore, while net NPAs (NNPA) are estimated at Rs 10,706 crore.
Analysts at Elara Capital estimate a fall in the bank’s revenue on sequential terms, but see a 15 per cent growth YoY.
The same is pegged at Rs 9,073.7 crore, down 6.6 per cent, from Rs 9,712.4 crore reported in the previous quarter of the current fiscal; but up 14.7 per cent from Rs 7,910.5 crore logged in Q2FY19.
Emkay Global Financial Services
For the recently concluded quarter, Emkay Global expects the NIM to remain flat at 3.4 per cent, largely due to minimal loan growth.
The brokerage, however, warns of fresh slippages from Cox & Kings (Rs 2.1 billion), Mcloed Russel (Rs 4 billion), and ADAG NBFC (Rs 6 billion).