HDFC Securities: Axis Bank’s Conservatism Hits Earnings In Q1

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HDFC Securities Report

Axis Bank’s net interest income (NII) and pre-provision operating profit (PPOP) growth were healthy at 19.5% and 15.8% respectively. Profit after tax (PAT) dipped 18.8% YoY to Rs 11.1 billion. However, adjusted for the net impact of changes in accounting policy (NII reserve, fee recognition and provisions), PAT would have been Rs 16.3 billion (over 18.7% YoY).

Surprisingly, AXSB’s moratorium (by ) dipped to 9.7% of loans (25-28% of loans in Q4 FY20). This sharp drop is encouraging but odd. As per the management, borrowers representing 90% of the second moratorium formed part of the first moratorium, and 70-80% of the borrowers who had availed of the first one paid in June. The second moratorium was subject to stricter conditions. Moratorium trends will be keenly watched. We maintain a Buy on Axis Bank with a target price of Rs 565. We have slightly reduced our earnings estimates, as we build slower loan growth, lower net interest margins (NIM)s, and slightly higher provisions. Improved risk practices (post CEO change), a strong balance sheet (capital to risk assets ratio (CRAR) approximately 17.5%, provisioning coverage ratio (PCR) approximately 75%), and a strong liability franchise will hold the bank in good stead. Our constructive stance on AXSB ties in with our broad thesis that large private banks with strong balance sheets and deposit franchises will emerge stronger.

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HDFC Securities Axis Bank Q1FY21 Results Review.pdf

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