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 investing.com 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/-.
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