Axis Bank

CitiBank acquisition provides access to an affluent client base: Axis Bank

Update on the Indian Equity Market:

On Monday, NIFTY crossed the 18,000 mark to settle at 18,053 (+2.2%) aided by the surge in HDFC twins post the announcement of the merger of HDFC Ltd into HDFC Bank. HDFCBANK (+9.8%), HDFC (+9.1%), and ADANIPORTS (+4.1%) led the stock gainers. INFY (-1.1%), TATACONSUM (-0.4%), and TITAN (-0.2%) led the laggards. Among the sectoral indices, FINANCIAL SERVICES (+4.6%), BANK (+4%), and PRIVATE BANK (+3.9%) led the gainers and there were no sectoral losers.

Excerpts of an interview with Mr. Amitabh Chaudhary, MD & CEO, Axis Bank published in Economic Times on 1st April 2022:

  • Axis bank acquired Enam Financials, which was renamed Axis Capital. It is the number one player in the equity capital markets in India and is expanding business in the brokerage and M&A segments. Axis Capital will also benefit from the One Axis strategy.
  • Axis bank was distributing Max Financials’ products for over 10 years, so its acquisition provided an opportunity to sign up for a long-term deal and strengthened the partnership with Max.
  • Citi bank’s retail portfolio acquisition was in line with Axis bank’s strategy of granularizing retail business and premiumisation of the portfolio. The acquisition will create opportunities and synergies that will accelerate the journey to creating a franchise across the country.
  • The acquisition provides access to one of the best affluent consumer franchises in India and Axis bank will get access to salary accounts, 1600 plus corporate accounts, and Suvidha corporates. Axis bank will also gain 3,600 Citibank employees. There are a lot of interesting parts which will strengthen Axis Bank’s franchise.
  • The CEO believes they have structured a transaction where the Bank is protected from customer attrition.
  • The price paid for the transaction was approved by the Board. The transaction took slightly longer because it was a complex one. As it was a purchase of a portfolio, he believes it was better that some of the complications were discovered upfront rather than during the transition process.
  • It will take about nine to twelve months to get all the regulatory approvals. It will take time to get customer consent, which depends on the agreement customers have with Citibank. From there, it will take 18 months to transition every Citi customer to Axis’ platform.
  • Right now, wholesale banking has been muted due to muted credit growth. Axis bank wants to be careful about giving loans at prices where the NIMs doesn’t make any sense. Overall, he believes there is a lot of work that can be done on the wholesale banking franchise.
  • Axis bank’s balance sheet gives it the flexibility to fund Citi India’s consumer purchase through balance sheet liquidity, external capital, or a combination of both. The impact will be 230bps on the CET ratio. Though the resultant CT-1 ratio will be above regulatory requirements, the Bank may consider raising capital in the future.
  • A very important part of any merger of this size is how to execute that merger. The integration management committee has already been formed and some of the important considerations in that plan would be around customer attrition, staff attrition, technology transition, and also getting benefits in terms of ensuring that Axis bank can cross-sell more to the Citibank customers.

 Asset Multiplier Comments

  • We believe the deal will add to Axis Banks’ competitive positioning across the credit cards and wealth management segments.
  • The value accretion from Citibank’s portfolio in the long term depends on Axis Bank’s ability to retain and continually add customers as well as employees and its ability to up-sell and cross-sell. The deal is fairly small compared to the size of Axis Bank’s balance sheet.

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

  • The closing price of Axis Bank was ₹ 784/- as of 04-April-2022. It traded at 1.9x/ 1.7x the consensus book value per share estimate of ₹ 417/ 474/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 943/- implies a P/BV Multiple of 2x on the FY24E book value per share estimate of ₹ 474/-.

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.”

Private CAPEX visible as demand came back post 2nd wave – Axis Bank

Update on the Indian Equity Market:

On Wednesday, Nifty ended higher at 17,470 (+1.7%). PSU BANK (+2.6%), MEDIA (+2.5%), and AUTO (2.3%) were the top sectoral gainers and there were no sectoral losers. Among the NIFTY50 stocks, BAJFINANCE (+3.6%), MARUTI (+3.2%), and HINDALCO (+3.1%) were the top gainers while HDFCLIFE (-1.2%), KOTAKBANK (-0.8%), and POWERGRID (-0.3%) were the top losers.

Edited excerpts of an interview with Mr. Amitabh Chaudhry, MD and CEO of Axis Bank with CNBCTV18 on 7th December 2021:

  • After the 2nd wave of COVID-19, the credit demand came back, government spending increased, the festive season also went well, and the reinvestment coming back. RBI data shows corporate growth in October-2021 after the consistent decline in the previous 12 months.
  • The government spending increased across all sectors, especially in Infrastructure and Defence. Mr. Chaudhry said private capex is visible in refineries, renewable energy, data storage, warehousing, logistics, and commodities. He expects in the next 9 to 12 months real capex will resume but it’s dependent on the virus situation.
  • Chaudhry said the bank’s growth is in line and similar to its peers in sectors in which Axis Bank wants to grow.
  • The Bank did not see any growth in the large corporate segment due to the pricing. It sees the rates in this segment are not similar to the one it wants to lend at. As the private capex and risk premium come back then it will start lending again to the large corporates.
  • Overall Axis Bank’s unsecured loan is under control within the risk guidelines. It sees some scope of growth in the credit card segment, as the AUM in the credit card declined post-Covid and is now recovering.
  • On the unsecured personal loan side, Axis Bank sees decent growth and expects that to pick up as the market for personal loans is huge. On the credit card side, it has seen good acquisition momentum, and Axis Bank continues to sign up new alliances and that should reflect on the credit card segment growth.
  • Chaudhry said the granularity of their deposit franchise suffered over the last 5 to 7 years and Axis has been gradually building it back. From 2020 onwards every quarter their CASA deposits growth has been catching up with industry leaders and the transformation that they are undertaking on their liability side will continue to add that growth going forward.
  • Chaudhry further said that the kind of deposits they have, the outflow percentage as decided by RBI are higher and they have a higher proportion of their assets and investments which carry lower interest margins.

Asset Multiplier Comments:

  • We expect margins to improve in the near-term on the back of an improvement in its product mix which is expected to change in favour of retail segments, granular liability franchise, and a reduction in the mix of Rural Infrastructure Development Fund (RIDF) bonds.
  • Stable asset quality, higher recoveries and healthy provision coverage ratio of ~70% coupled with additional provision buffer is likely to support bank’s balance sheet from any potential stress.

 Consensus Estimate (Source: market screener and TIKR websites)

  • The closing price of AXISBANK was ₹ 696/- as of 08-December-21. It traded at 2x/1.6x/1.5x the consensus BVPS estimate of ₹ 369/417/475 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 948/- implies a PB multiple of 2.3x on FY23E BVPS of ₹ 417/-.

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.”

Ambitious to take ROE to 18% – Axis Bank

Update on the Indian Equity Market:

On Tuesday, Nifty 50 closed at a record high of 17,132 (+1.2%), led by BHARTIARTL (+6.7%), BAJFINANCE (+5.1%), and HINDALCO (+4.9%). The top losers were TATAMOTORS (-1.5%), NESTLEIND (-1.2%), and INDUSINDBK (-1.2%). The sectoral gainers were led by METAL (+1.5%), HEALTHCARE (1.4%), and IT (+1.4%). MEDIA (-0.1%) was the only sector that ended in the red.

Excerpts of an interview with Mr. Amitabh Chaudhry, MD & CEO, Axis Bank (AXISBANK) published in The Economic Times on 27th August 2021:

  • There are reasonable indications that the private capex creation has started, but only in some segments at this stage. The private sector capex is robust in segments such as upstream refinery, steel, cement, chemical, pharma, renewable, and storage systems.
  • The government has come up with a scheme inviting investments into the electronics and industrial automation, logistics, and export-oriented industries. The government is also investing in railways, roads, and highways. An accommodative stance by the RBI and the government is helping in the economic revival.
  • A lot of retail customers were supported in the first covid wave through two specific moratoriums and restructuring. This resulted in retail delinquencies not being as high as estimated. During the second wave, there was no moratorium and a lot of customers who availed of the moratorium were adversely impacted by the second wave.
  • For AXISBANK, a lot of the slippages on the retail side were from secured assets and loan-to-value against the secured assets were low. Either the customer repays, or the bank sells the assets. Hence, recovery was never an issue, it was a timing issue.
  • The stimulus led to a system liquidity surplus resulting in lower market borrowing rates. As a result, well-rated corporates are sitting on huge piles of cash and have repaid their borrowings. As a result, the credit growth of the industrial sector is being led by mid-sized corporates and some refinancing.
  • AXISBANK believes there are considerable credit opportunities as the economy starts reviving.
  • The bank is already operating in the zone of 15-16% Return on Equity (ROE). The ambition is to take it to 18%, which is an uphill battle.
  • AXISBANK believes it is very important to scale the subsidiaries further over the next couple of years.
  • Over the past 5 years, the acceleration towards embracing technology with the rapid emergence of fintech and Covid has only hastened the pace. AXISBANK recognised a few years back the need to scale up investments in technology. The technology spend has gone up ~78% in the last 2 years.
  • The entire strategy of AXISBANK on the digital front is around challenging themselves and working in partnerships with fintechs to provide solutions. AXISBANK will expand partnerships with fintechs going forward.
  • There are significant growth opportunities for the next 5-7 years. The Bank is laying the foundation for the future where it can capitalise on business opportunities in every segment.

Asset Multiplier Comments

  • Though slippages could remain elevated in the near term, healthy PCR (Provision Coverage Ratio) protects the Balance Sheet against any potential stress.
  • The bank is positive on economic revival which will lead to credit growth, healthy NIMs eventually helping to achieve the Bank’s target of 18% ROE.
  • With the work-from-anywhere culture and remote decision making, each organisation has realised that technology up-gradation is non-negotiable. AXISBANK has taken a step in the right direction by undertaking technology investments and execution of transformation projects.

Consensus Estimate: (Source: market screener and websites)

  • The closing price of AXISBANK was ₹ 738/- as of 31-August-2021. It traded at 2.0x/ 1.8x/ 1.5x the consensus book value estimate of ₹ 370/ 420/ 479 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 871/- implies a PB multiple of 1.8x on FY24E BV of ₹ 479/-.

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.”

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.”


It will be a long road to recovery from Covid-19 – Axis Bank

Update on the Indian Equity Market:
On Friday, Nifty ended 0.8%, higher than the previous close at 11,655. The top gainers for Nifty 50 were Indusind Bank (+12.1%), Axis Bank (+7.9%), and UPL (+4.7%) while the losing stocks were JSW Steel (-3.0%), Hero MotoCorp (-2.6%) and Dr Reddy (-1.6%). The sectoral gainers for the day were PSU Bank (+5.2%), PVT Bank (+4.7%), and Bank (+4.2%) while the losers were Auto (-0.8%), Metal (-0.4%), and FMCG (-0.2%).

Edited excerpts of an interview with Mr Amitabh Chaudhry, MD, Axis Bank; dated 26th August 2020 from Economic Times:

The macro situation has improved quite a bit, but the economy is nowhere out of the woods.
The economy today is operating at 70-75% levels. The recovery remains uneven with a faster rise in supply than demand. The RBI annual report published also suggests that they remain extremely worried about consumer demand and that it would take some time to recover.

India is in a long haul before the economy recovers to pre-COVID levels partly driven by the fact that consumption patterns have been debilitated in many ways. People are conserving cash, and localised lockdowns continue. All this hurts demand and the notion that things are coming back to normal.
Increasingly corporates are saying that things should get better by the third quarter. But, he thinks that the improvement is spotty where recovery is visible in some sectors while some other sectors continue to get hurt quite badly.

Once the customer is assured that they are the fag end of the crisis, things will change dramatically and the economy should revive much faster.

The RBI Governor has been warning banks to be careful with their money, and to raise capital.
The banks have learnt their lesson after the last crisis, they are not going to be out there lending in a hurry. This applies to public sector banks as well.

Government has indicated that once the unlock process continues, they will come back with more support for the economy. The government has to play a very important role.

To revive and support the economy, the Government has categorised into 3 buckets. For the people who need it they are doing the cash hand-outs, the second is supporting MSMEs for incremental lending, and the third category is about long-term reforms. These long-term reforms include working with the RBI to towards refinance schemes, moratorium, and restructuring to support the other sectors of the economy.

Axis Bank will continue to adopt a conservative approach; they will do an intense credit screening before allowing any restructuring and will be much more prudent in provisioning for such loans.

There is a disproportionate restructuring share coming from sectors which are severely impacted due to COVID like airlines, tourism, and real estate. But, there is no sector that would be able to escape this severe economic shock and the vulnerable ones in every sector will need help.
For restructuring in Axis Bank portfolio, one will find loans from practically every sector because there will be some corporates who were in vulnerable state and COVID pushed them into a state where they may need restructuring help.

Lose of job & salary cut will have a bigger impact on the retail portfolio, followed by MSMEs and then wholesale.
Axis Bank is planning several schemes for the festive season and working with various manufacturers to see what they can offer to customers so that they start consuming again.
Max Life deal will add a lot of value on both sides.

Consensus Estimate: (Source: market screener & websites)
The closing price of Axis Bank Ltd was ₹ 510/- as of 28-August-2020. It traded at 1.6x/1.4x/1.3x the consensus Book Value estimates of ₹ 325/359/408 for FY21E/FY22E/23E respectively.

The consensus target price of ₹ 541/- implies a PB multiple of 1.3x on FY23E Book Value of ₹ 408/-.

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.”

Banking sector’s exposure to MSMEs at 12-14%- Amitabh Chaudhary, Axis Bank

Update on Indian Equity Market:

Nifty started the day with a sell-off but closed the week flat at 9,136. The only sectors to close in positive today were METAL (1.6%) and FMCG (0.1%) as all other sectoral indices traded lower with MEDIA (-1.8%), REALTY (-1.5%) and PVT BANK (-1.2%) were the biggest losers. Within the index, VEDL (3.9%), BHARTIARTL (2.8%) and BPCL (2.6%) were the highest gainers whereas M&M (-4.6%), ZEEL (-3.6%) and AXISBANK (-3.3%) were the laggards.

Excerpts from an interview with Mr Amitabh Chaudhary, MD & CEO, Axis Bank aired on CNBC TV18 on 14th May 2020:

  • Mr Chaudhary mentioned that the impact of this lockdown is widespread across all industries and no longer restricted to some. It will take more time for economic activities to pick up. IT will continue to remain tough for some period of time.
  • He mentioned that as a result of all this, non-performing liabilities (NPL) will rise. The economy needs support so that people can come back to business quickly and start producing the cash flow so that the NPLs will be lower.
  • He accepted that there is ample liquidity in the system. The challenge is to be able to deploy it effectively. This is resulting in the excess liquidity being parked with the RBI. There is a negative pressure on the net interest margins (NIMs) across the banking system because the cash which has been there is not getting deployed.
  • Government is slowly coming up with new schemes where the deployment of some excess liquidity will start happening. He is confident that this will help the NIMs positively.
  • He stated that if the NPLs rise and if moratorium is not given or some kind of one-time restructuring is not allowed, this will further lead to negative impact on NIMs. Next three to six months will determine the trajectory of the banking
  • Commenting on the fiscal package announced by the Government, Mr Chaudhary said that the Government further needs to provide support to the economy to prevent non-performing loan formation.

Consensus Estimate: (Source: market screener, investing websites)

  • The closing price of Axis Bank was Rs 403/- as of 15-May-2020. It traded at 1.2x/ 1.1x the consensus Book Value estimate of Rs 324/ 363 for FY21E/ FY22E respectively.
  • The consensus target price of Rs 568/- implies a PB multiple of 1.6x on the FY22E BV estimate of Rs 363/-

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.”

‘Opportunities for growth delivery across segments’- Amitabh Chaudhry, Axis Bank

Update on the Indian Equity Market:

On Monday, Nifty 50 closed marginally lower at 12,046. IT was the only sector that ended marginally in the green. PSU Bank (-3.0%), Realty (-1.5%) and Media (-1.1%) were the top losers. Titan (+1.7%), GAIL (+1.6%) and Nestle (+1.6%) were the top gainers while Yes Bank (-4.0%), Coal India (-3.8%) and ONGC (-3.2%) were the top losers for the day.

‘Opportunities for growth delivery across segments’- Amitabh Chaudhry, Axis Bank

Excerpts of an interview with Amitabh Chaudhry, MD, and CEO, Axis Bank published in Mint on 17th February 2020:

  • The market share of Axis Bank is in the 4.5-5 percent range in deposits and loans. Opportunities are there and growth delivery across all businesses is possible. Although the loan growth has been good, the bank has seen some unexpected stress. Now the stock of overall stress has come down which will hopefully be reflected in the slippages.
  • The bank has been one of the most transparent ones in his view, in terms of disclosing numbers. Barring further shocks, from all the metrics, the future looks good, which they need to demonstrate in the coming quarters.
  • The growth is mainly coming from refinancing activity. No significant new activity has been observed. Hence, he is of the view that economic activity will take some time to pick up.
  • The SME side of the business is the first one to get a hit as the economic activity slows. The average realizations are coming down in a very calibrated way. In some sectors, the exposure has been reduced and some new relationships added.
  • The growth has been good in the retail segment, aided by slower lending by Non-banking financial companies (NBFCs) and the slowdown in consumption. Retail estate and some other asset classes also help in adding to the momentum in retail. In terms of the delinquencies and risk metrics, the bank is at historical lows except for CVC and some parts of MFI business.
  • The retail story is the talk of the day. Everyone is either already into the business or entering it. Either way, the probability of the retail cycle coming is increasing as time passes. The government is also trying to offer relief measures to push consumption, RBI also has a loose monetary policy, thus liquidity is there in the system.
  • Despite the rabi harvest being pretty good, there hasn’t been a significant pickup in tier-2 and tier-3. The slowdown has helped inventory stabilization at a reasonable level but there has not been any pickup in consumption as yet.
  • The government is trying to infuse liquidity to benefit both the real estate and NBFC sectors. Some of the troubled NHBCs today have high exposure to the real estate sector. So, if NBFC is okay and can start lending, the money is expected to go to the real estate sector.
  • The banker is of the view that the cleansing process is not over yet and that the government will continue going after people who have taken the system for a ride. So, that means there will be a negative surprise but they have to be prepared for it.
  • In the hindsight, it was a good thing they raised capital when they did. There is enough ‘firepower’ now for continued growth over the next few years, which will be used in a very calibrated manner.
  • The promises made as part of the GPS strategy haven’t changed yet. The aspirational 18% return on equity (ROE) is not possible. However, they have been able to maintain the long- term credit cost below 1 percent and cost to asset ratio below 2%. These promises were made because they believe they have the means to do something very different, digital banking is one of them.

Consensus Estimate: (source: market screener and websites)

  • The closing price of Axis Bank was ₹ 739/- as on 17-February-20. It traded at 2.5x/ 2.2x/ 1.9x the consensus Book Value estimate of ₹ 302/ 342/ 396 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 847/- which implies a Price to Book multiple of 2.1x on FY22E Book value of ₹ 396/-

Axis Bank: Adequate liquidity in the system now

Update on the Indian Equity Market:

Taking the cues from global markets, Nifty opened positive on Tuesday. The gains were wiped out shortly on the back of the weak economic data released on Monday evening.  The index of eight core infrastructure industries declined 0.5% in September, as compared to 2.7% in the month of August. The Nifty closed the day 115 points lower at 11,359. Among the index, YESBANK (-22.2%), ZEEL (-10.8%) and INDUSINDBK (-5.6%) were the top losers while BPCL (4.9%), M&M (2.2%) and HDFCBANK (1.9%) were the top gainers. All the sectoral indices closed the day in red with Media (-4.3%), Realty (-4.1%) PSU Bank (-3.8%) led the chart.

Axis Bank: Adequate liquidity in the system now

Key takeaways from the interview of Mr Amitabh Chaudhry, Chief Executive Officer, Axis Bank; dated 1st October 2019 in Mint:

  • The Government has taken a lot of steps with a series of announcements in the last few months. As a result, the signs of positive sentiment are visible. In terms of auto loans, the bank is witnessing applications rise 15-20% month-on-month. The same thing is also happening on the mortgage side.
  • The next three to four weeks will be very crucial for the economy as the festive season is on. If these weeks can demonstrate positive momentum, it will continue further in the long run as well. The issue is not that money is lacking but whether the bank can find the right people to lend.
  • While the NBFCs (Non-Banking Financial Companies) have been quite vocal and transparent about their asset-liability situation, a lot of NBFCs have not really come out in terms of sharing and being more transparent about the quality of their asset book. There are question marks around that.
  • About the recently completed Qualified Institutional Placement (QIP) worth ₹ 12,500 cr, he mentioned that the bank went to the market with ₹ 10,000 cr plus ₹ 2,500 cr and got demand for ₹ 13,000 cr. It was a gutsy move in this kind of economic environment.  When asked about the quality of investors, he said that the issue was subscribed by long-term long-only investors.
  • With the completion of QIP, he expects the CET-1 (Common Equity Tier 1) ratio to be closed to 14%. This puts the bank in the same zone as some of the best banks.
  • During the 1QFY20, the bank reported slippages more than expected. It was a combination of two-three factors. First, the bank is trying to be more on a conservative side. Second, there were some assets that have been in the BB and below book for a long time. Given what has been happening in the National Company Law Tribunal (NCLT) and the pressure from regulatory agencies and the economic situation in the country, some of the assets did slip. It will take some time to manage this book.

Consensus Estimate (Source: market screener website)

  • The closing price of AXISBANK was ₹ 679/- as of 01-October-19. It traded at 2.2x/1.9x /1.6x the consensus book value for FY20E/ FY21E/ FY22E of ₹ 305/353/412 respectively.

Axis Bank Ltd (AXS)- 1QFY20 Result update- Operating performance drives the earning momentum.

Dated: 31st July 2019

Key financial performance:
1) Loan book grew of 13% YoY in this quarter led by domestic loan book growth of 19% YoY. The international loan book declined 34% YoY. Retail loan book continued to be the key growth driver- growing at 22% YoY. 
2) Deposit grew 21% YoY in this quarter. The CASA ratio stood at 60%. The deposit growth was led by 37% YoY growth from the term deposits while CASA grew 3% YoY.
3) Net Interest Income (NII) grew 13% YoY at Rs 58,437 mn with Net Interest margin (NIM) of 3.5%. NII for 1QFY19, there was a one-time positive impact of Rs 2,490 mn due to the recovery of a large IBC case. Adjusting this one-off, NII has seen a growth of 19% YoY.
4) Non-interest income for 1QFY20 grew 32% YoY to Rs 38,690 mn driven by fee income that grew 26% YoY to Rs 26,630 mn. Trading profit stood at Rs 8,320 mn driven by G-Sec gains. Miscellaneous income for 1Q stood at Rs 3,730 mn, primarily dividend from subsidiaries and recovery in written-off accounts.
5) PPOP grew 35% YoY, with contribution from all revenue and cost line items. 
6) Provisions for the quarter stood at Rs 38,146 mn, a 14% increase from a year-ago period.
7) Net profit for the year grew 95% YoY at Rs 13,701 mn on the back of an improved performance at the operating level & efficient management of the costs.
8) NPA ratios for the Bank remained stable during the quarter. GNPA ratio stood at 5.25% and the NNPA ratio stood at 2.04% which was slightly lower than the previous quarter. (GNPA at 5.26%, NNPA at 2.06% in 4QFY19)
Management Commentary:
1) Loan Book:
a) The Bank’s strategy on retail assets continues to be centred around existing customers of the Bank. 83% of retail assets originations in 1Q was from existing customers. 98% of the Bank’s credit card and 93% of personal loan originations in the quarter were from existing customers of the bank.
b) The Bank’s Auto Loans business: Auto loans portfolio has grown by 36% YoY. The growth is evenly spread across the country. Auto loan disbursements have grown by 19% YOY in 1QFY20. 
c) SME lending growth was tepid at 8% YoY. Term loans and working capital loans grew by 3% and 9% YoY, respectively.
d) In the Corporate Bank, domestic loan growth stood at 16%, and the international book de-grew 39% YoY.
2) The management expects the domestic loan book of the Bank to grow 5-7% faster than industry.
3) For FY20, AXS expects NIM to remain broadly flat YoY, with an upward bias. They expect NIMs to settle in the range of 3.5-3.8% over the medium term.
4) Cost to the asset to stabilise at the current level of 2.08% in the near term before trending down to 2% level in the medium term.
5) AXS increased provisioning on certain non-banking assets held on their books. This was an additional provision of Rs 5,350 mn during this quarter. This quarter, they made specific provisions for all Non-Fund Based exposures that they have to borrowers that are either already NPA or are in the BB & Below pool. As they transitioned to this new regime, the bank made an additional provision of Rs 4,590 mn during the quarter.
6) The Bank’s Provision Coverage on Non-Performing Assets stands at 78%, compared to 69% in 1QFY19 and 77% in 4QFY19.
Consensus Estimate (Source: market screener website)
• The stock price was Rs 669/- on 31st July 2019 and traded at 2.2x/1.9x/1.6x consensus Book value of Rs 306/346/ 415 for FY20E/21E/22E respectively. 
• Consensus target price is Rs 847.5/- implying PB of 2.4x for FY21E BVPS of Rs 415/-

NII- Net interest income
NIM- Net interest margins
PPOP- pre-provision profits
NPA- Non-performing assets

Axis Bank: Banks aren’t out of the woods yet, but closer to the tail

Dated: 17th July 2019

Interview with Mr Pralay Mondal (the head of retail banking at Axis Bank from ET NOW dated 17th July 2019)

Interview highlights:
 The banking industry is in a perennial clean-up cycle and we are in the midst of an NBFC and real estate crisis. The NBFC model does not work; they cannot compete with banks on pricing. Banks are coming out of a very poor NPA cycle, but according to him, it is not out of the woods yet 
 The good news is that the clean-up is visible, we know what the issues are, it can get worse, but you have a fair understanding of the situation. The bad news is that globally, there are a lot of challenges — the US is not looking very well, we are caught amid trade wars and India is not immune to this. 
 The auto consumption is down, auto dealers are in shambles. There is clear demand destruction happening there. The consumption economy is not doing so well, there is a clear impact on mortgages. 
 The discretionary part, which is the personal loans, credit cards and unsecured loans where we don’t have a full understanding of the end-use, which is growing at a very rapid pace. 
 One segment says that the credit-GDP penetration is very low, so we have big opportunities at the bottom of the pyramid segment. If you look at companies like Titan, HUL, ITC, Hero Honda, consumption is not taking off, so we need to understand that bank is a surrogate of all of this. 
 If the quality of NBFC portfolios being sold is good then the good portfolio is moving. Some of that will play out eventually, but it may not hit the banks hard.

Consensus estimates: (source market screener website)
 The stock price is Rs 754/- as of close price of 17th July 2019. It trades at 2.5x/ 2.2x/ 1.8x the consensus book value for FY20E/ FY21E/ FY22E of Rs 303/ 346/ 419 respectively.
 The consensus price target is Rs 851/- valued at 2.5x FY21E book value of Rs 346/-.