Expect credit costs to gradually normalize in FY22E – Axis Bank

Expect credit costs to gradually normalize in FY22E – Axis Bank

Update on the Indian Equity Market:


Wednesday was a pause from normalcy at NSE as the exchange closed down at 11.40 am due to issues at both their telecom service providers. To compensate, NSE & BSE extended trading hours from 3.45 pm to 5 pm. Nifty closed 1.9% higher at 14,982. Within NIFTY50, HDFCBANK (+5.4%), COALINDIA (+5.3%), and AXISBANK (+5.2%) were the top gainers, while UPL (-2.4%), POWERGRID (-1.5%), and DRREDDY (-1.5%) were the top losing stocks. Among the sectoral indices, PRIVATE BANK (+3.9%), BANK (+3.8%), and FINANCIAL SERVICES (+3.4%) were the only gainers while IT (-0.1%)    was the only sector to end with losses.


Expect credit costs to gradually normalize in FY22E – Axis Bank


Excerpts of an interview with Mr Amitabh Chaudhry, MD & CEO, Axis Bank, aired on CNBC-TV18 on 23rd February 2021:

  • AXISBANK was expecting to see slippages rise in 2HFY21. AXISBANK has already seen a large part of the slippages already happening in 3QFY21. Management expects slippages to be comparatively lower in 4QFY21, and stability to return in FY22E.
  • Management has been prudent in upfronting the provision hit and being conservative on restructuring and the Emergency Credit Line Guarantee Scheme (ECLGS).
  • Management expects the credit costs to start moving back to long-term averages gradually.
  • AXISBANK’s retail disbursements were back to pre-Covid levels in 3QFY21. They have seen the momentum continue till now. If economic activity slows down again, it will impact loan demand with a lag.
  • AXISBANK reported a 5.9% growth in advances in 3QFY21 which is conservative compared to growth reported by peers.
  • On the wholesale segment, AXISBANK is focusing on only certain segments as pricing is under pressure.
  • AXISBANK had slowed down on the SME book 2 years back. The SME book is now restructured and growth has started to come back.
  • On the Retail book, AXISBANK was cautious on the uptick when the demand came back, but December was very strong for them.
  • AXISBANK’s capital adequacy is among the industry best. He does not see the need for further equity issue in the next couple of years. Regardless, AXISBANK has the approval to raise Rs 50 bn via equity.
  • AXISBANK’s proposed deal with Max Life has received CCI approval. IRDAI approval has to be obtained by Max Life and the timeline for that cannot be predicted.
  • AXISBANK is always looking out for opportunities for acquisition. One space where they do not have a presence in the health and non-life side. If the right opportunity comes in, management will be open to acting on it. AXISBANK also wants to scale up subsidiaries, but only if opportunities appear at the right price.


Asset Multiplier Comments:

  • Most large banks have indicated that their credit costs have been upfronted and would see normalization FY22E onward. AXISBANK is no different in this aspect.
  • The banking sector overall is showing signs of improvement as the economy is getting back on track. However, the recovery hinges on the prevalence of this normalcy. In the event of a second wave of Covid-19 and any further disruption in the economic recovery, the performance across sectors will be impacted.


Consensus Estimate (Source: investing. com and market screener websites)

  • The closing price of AXISBANK was ₹ 753 as of 24-February-2021. It traded at 2.3x/ 2.0x/ 1.8x the consensus BVPS estimate of ₹ 328/ 368/ 419 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 764/- implies a PB multiple of 1.8x on FY23E BVPS of ₹419/-.


Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”


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