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Reasonable performance that lags ICICI’s

Result Highlights

* Asset quality: Gross slippages amounted to Rs 54.54bn (annualized slippage ratio of 3.5%) but recoveries and upgrades were also healthy at Rs 47.57bn

* Margin picture: NIM at 3.39% was down 7 bps QoQ due to loan mix changes, higher liquidity and market pricing pressure on wholesale loans

* Asset growth: Advances grew 1.1%/7.9% QoQ/YoY driven sequentially by SME and retail loans

* Opex control: Total opex rose 17.0%/36.2% QoQ/YoY, employee expenses rose 4.5%/37.0% QoQ/YoY and other expenses rose 24.5%/35.9% QoQ/YoY

* Fee income: Fees income rose 21.1%/17.4% QoQ/YoY driven by higher card spends, among other factors.

Our view –

Reasonable performance that lags ICICI’s 28% of the gross slippages during the quarter were upgraded during the same quarter: Restructured book amounted to 68 bps of gross customer assets as of September 2021 compared with 33 bps as of June 2021. Credit costs amounted to 54 bps for the quarter. Outstanding Covid provisions remained stable at Rs 50.12bn whereas provisions on restructured book provide a 24% cover on the same. All provisions taken together provide a 124% cover on GNPA.

Management stated that, while NIM contracted sequentially, there were factors that would be structurally supportive of NIM expansion: Key factors that would drive NIM expansion are (a) loan mix change (b) rise in share of low-cost deposits and (c) decline in RIDF book, which is 4% of balance sheet. Tactically, unwinding of excess liquidity, with LCR at 120%, would also help. Management stated that NIM for FY22 would be at or above 1HFY22 levels.

Management stated that key growth drivers for the overall book would be retail, SME and mid-corporate loans: SME loans and retail loans grew 6.7% and 4.3% QoQ, respectively. Within retail loans, the growth was driven by home loans, rural loans, LAP and small business loans, which grew 5.6%, 3.5%, 9.9% and 26% QoQ, respectively. On the large/mid-corporate front, the book de-grew -5.1% QoQ on the back of deleveraging repayments. Management stated that the second Covid wave had pushed back the capex cycle by 6-12 months.

We maintain ‘Buy’ rating on AXSB with a revised price target of Rs 989: We value the standalone bank at 2.1x FY23 P/BV for an FY22E/23E/24E RoE profile of 12.4/13.9/14.8%. We assign a value of Rs 105 per share to the subsidiaries, on SOTP.

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