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Consolidated RoE improves to 21.6% on an adjusted basis

* Axis Bank (AXSB) reported a loss of INR57.3b led by an exceptional item of INR123.5b (net of tax) towards Citi’s acquisition, policy harmonization and other related costs. Excluding these one-offs, adjusted PAT came in at INR66.3b (+61% YoY, 10% beat), largely driven by a sharp reduction in provisions. NII/PPoP witnessed a miss with margin moderating 4bp QoQ to 4.22% (almost flat on an adjusted basis) in 4QFY23.

* Loan growth was healthy at 16% YoY and 7% QoQ (ex-Citi), fueled by strong growth across segments. Deposit growth too was healthy with an increase in CASA and retail deposits during the quarter.

* Fresh slippages moderated to INR33.8b, which coupled with healthy recoveries and upgrades led to an improvement in asset quality ratios. Restructured book was under control at 0.22% of customer assets in 4QFY23.

* We tweak our estimates slightly and expect AXSB to deliver RoA/RoE of 1.9%/ 18.1% in FY25. Retain BUY with a TP of INR1,100 (based on 1.8x Sep’24E BV).

PPoP miss led by a miss on NII; margins moderate slightly

* AXSB’s 4QFY23 adjusted PAT grew 61% YoY to INR66.3b (10% beat), largely driven by lower provisions. In FY23, adjusted PAT grew 68% YoY to INR219.3b (reported PAT came in at INR95.8b).

* NII grew 33% YoY (+2.5% QoQ) to INR117.4b (6% miss) even as loan growth remained healthy. Reported margin contracted 4bp QoQ to 4.22% (flat on an adjusted basis). Other income grew 16% YoY (in line), driven by 24% YoY growth in fee income while treasury gains stood modest at INR830m.

* Opex grew at a healthy pace as the bank continued to invest in the business. As a result, the C/I and cost-to-assets ratios (annualized) increased to 44.9% and 2.4% (2.25% adjusted for one-offs) in 4QFY23. PPoP grew 42% YoY to INR91.7b (6% miss). In FY23, PPoP rose 30% YoY to INR320.5b.

* Total provisions declined sharply to INR3.06b. The annualized credit cost (net) declined to 22bp. The bank did not utilize any Covid-related provisions and held an additional provision buffer (including standard asset provisions) of INR119.3b (1.4% of loans).

* The loan book grew 16% YoY and 7% QoQ in 4QFY23, with Retail/SME loans up 7%/13% QoQ and corporate loans growing healthy at 6% QoQ. On the liability front, deposits grew 10% YoY and 7% QoQ led by CASA deposits, which rose 10% YoY. The CASA ratio, thus, increased to 46%, while CASA plus retail term deposits stood at 79% during the quarter.

* On the asset quality front, fresh slippages moderated to INR33.8b (v/s INR38.1b in 3QFY23), which coupled with healthy recoveries and upgrades led to a 36bp/8bp QoQ improvement in GNPA/NNPA ratios. The net NPA ratio declined to 0.39%, while PCR was stable at 81%. Restructured loans stood at 0.22% of customer assets with PCR of 22%. BB and below pool fell to 0.65% in 4QFY23 (v/s 0.93% in 3QFY23).

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