Buy Axis Bank Ltd For Target Rs. 942 - Yes Securities
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Result Highlights
* Asset quality: Annualized slippage ratio for 1QFY22 was elevated at 4.2%, with management flagging a significant improvement in recoveries in 3QFY22
* Margin picture: NIM at 3.46% was down 10 bps QoQ, due to loan mix changes, among other factors
* Asset growth: Advances grew 0.1%/12.0% QoQ/YoY driven by corporate loans, home loans and auto loans
* Opex control: Total opex de-grew/grew -8.0%/32.3% QoQ/YoY due to a variety of factors, even as management guided for a full year cost to assets of ~2%
* Fee income: Fees income declined -21.0% QoQ due to weakness in business activity
Our view – Retention of Covid provisions not a sign of weakness
Of the net slippages of Rs 39.8bn, Rs 37.4bn emerged from the retail segment, of which 55% was from the secured segment: Gross slippages were Rs 65.18bn during 1QFY22 and recoveries and upgrades were Rs 25.43bn. Total provisions were Rs 35.3bn, up 7.2% QoQ. This contained a prudential provision of Rs 1.55bn made on restructuring approved but not invoked, with total cover on restructured book being 23%. Restructured book itself amounted to 33 bps of gross customer assets. Covid provisions were not utilized during the quarter and remained at Rs 50.12bn. Total provisions not reckoned for PCR amounted to Rs 124.25bn.
Decline in NIM was on account of loan mix change, interest reversal and CRR change: Competitive pressure in the wholesale and mortgages market also played its incremental role in this regard. On the positive side, management explained that the bank has an RIDF portfolio of Rs 480bn, which will be reduced going forward. Also, the share of secured disbursement at 84% is higher than historical standards and will be reduced going forward.
Corporate loans grew 1.3% QoQ and home loans grew 2.8% QoQ: Auto loans and unsecured consumer finance (credit cards and personal loans) accelerated to a growth of 8.3% QoQ and 12.5% QoQ, respectively.
We maintain ‘Buy’ rating on AXSB with a revised price target of Rs 942: We value the standalone bank at 2.1x FY23 P/BV for an FY22E/23E/24E RoE profile of 12.5/14.4/15.2%. We assign a value of Rs 52 per share to the subsidiaries, on SOTP.
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