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Result Highlights

* Asset quality: Gross slippages amounted to Rs 33.75bn (annualized slippage ratio of 1.8%) and recoveries and upgrades were healthy at Rs 26.99bn
* Margin picture: NIM at 4.22% was down on reported basis but was up 1 bps on like-for-like basis
* Asset growth: Advances grew 10.9%/19.4% QoQ/YoY driven sequentially by SME loans and by few segments in retail loans
* Opex control: Total opex rose 9.1%/13.6% QoQ/YoY, Employee Expense fell/rose -5.1%/14.7% QoQ/YoY and other exp. rose 16.2%/13.1% QoQ/YoY
* Fee income: Fees income grew 14%/24.4% QoQ/YoY, where retail banking fees grew 14.5%/31% QoQ/YoY

Our view – Placed as the top pick in May 2022, AXSB continues to deliver positive outcomes

While management stopped short of providing explicit NIM guidance, they alluded to striving to maintain NIM: There was 5 bps positive impact to the NIM in 3Q due to a one- time interest recovery on an account. For the quarter, there was a negative impact of 6 bps QoQ due to holding higher liquidity as reflected in the higher average LCR of 129%, up 13% points QoQ. The positive impact from interest on income tax refund in 4Q amounted to 3 bps. On the other hand, there was a positive impact of 4 bps in NIM for 4Q due to spread expansion. A key reason for excess liquidity was that the bank was going to pay for the Citi acquisition in 4Q. The NIM currently sits with a 40 bps cushion over the structural NIM guidance and management stated that they would aim to retain this cushion as much as is possible.

Management stated that AXSB can grow 400-600 bps higher than the banking system: The projection for credit growth (presumably for the system) is 12-13%. Earlier, growth had slowed for the bank since it was not comfortable doing low-yielding corporate and mortgage lending at the time. Improved corporate loan growth has been driven by steel, CRE, infra, roads and NBFCs.

We reiterate BUY rating on AXSB with an unchanged price target of Rs 1300: We had placed AXSB as the very top pick for the first time in our report dated May 2022. We value the standalone bank at 2.7x FY24 P/BV for an FY24E/25E RoE profile of
19.2%/19.0%. We assign a value of Rs 111 per share to the subsidiaries, on SOTP.

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