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Axis Bank reported decent set of numbers with core operating profit growth of 9.6%, however higher provisions of Rs.46,000mn, resulted in dip in net profit for Q3FY21.

Key Highlights of Q3FY21 Results

* Gross proforma slippages were at Rs.67,360m, with retail contributing 84% of total slippage, while 10% was slippage from wholesale business and rest was Commercial Banking. Reported Gross NPA/ Net NPA was at 3.44%/0.74% respectively, while without SC standstill, proforma Gross NPA/Net NPA stood at 4.55%/1.19%. The reported credit cost for the quarter ended 31st December is 65 basis points as compared to 2% for the same quarter last year. This represents a decline of 135 basis points. However, the credit cost, including provisions made on 90-plus DPD not classified pursuant to the Supreme Court judgment, stood at 3.3% for Q3 compared to 2% for Q3FY20. Restructured loan book was at 0.42% with provision coverage ratio (PCR) at 26% on it. Bank has adopted a conservative approach on making provisions with PCR on (Standard loans+Additional+Covid related loans) at 116%. Demand resolution improved to 98% in December vs 94% in September and 97% pre-Covid levels. Management has guided that slippages will be lower in Q4 as compared to current quarter, while it will continue to provide higher to strengthen its balance sheet. BB and below book was at 1.5% of loan book as compared to 1.58% in Q2FY21, with dip in Investment, Fund based and Non fund based book.

* Bank was conservative due to pandemic as loan book grew by 6% yoy, with retail advances growing by 9% yoy. 83% of incremental retail loans are secured and within unsecured, 80% of loans are given to salaried customers and existing bank customers. In Corporate book, 94% of incremental loans are A- and above rated with almost 71% having rating of AA and above. Corporate book grew by 2% yoy and now stands at 34% of total loan book.

* On P&L front, NII grew by 14% yoy, with NIM at 3.59% during the quarter. Interest reversal for the quarter was Rs. 6140 m, representing a 30 basis point impact on the NIMs for the quarter as compared to 4 basis points in Q2FY 21. Other income was flat yoy, while operating expenses grew by 9%, as bank rolled out increment for employees effective from 1 st October 2020.

* Bank is well capitalized with Tier-I at 16.5% and CAR at 19.3%. Bank has maintained excess liquidity with liquidity coverage ratio (LCR) of 119%.

OUTLOOK AND VALUATION

Restructured loan book was lower than anticipated. Bank has been conservative by increasing its PCR and gone slow in lending. With its strong capital and healthy liability franchise and lower credit cost, it has all the ingredients to grow faster. In this context, we recommend ‘Hold’ with a revised price target of Rs.841 with investment horizon of 18-24 months.

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