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‘Low provisioning drives profitability ’

Sharp decline in provisioning provided a strong boost to PAT which rose to Rs2,667 cr during Q4FY21. Though NII growth remained weak at 11% YoY due to subdued interest income meanwhile -15.2% YoY decline in interest cost offset the largely impact on margin. NIM witnesses modest 3bps sequential decline to 3.56%. Fee income revived significantly driven by retail fee income while provisioning remained significantly below estimation supporting bottom line.

Gross slippages was Rs5,285 cr (reduced from proforma slippages of Rs6,740 cr in Q3) with two third coming from the retail segment. GNPA/NNPA improved to 3.7%/1.05% in Q4FY21 (proforma GNPA/NNPA at 4.55%/1.19% in Q3) with PCR stood at 72.4%. Improvement in GNPA was led by higher write-off of Rs5,553 cr as the bank’s has adopted conservative write-off policy.

Restructuring book stood at 0.3% much lower than early estimates. Stress book (fund based BB below rated book +NFB low rated investments restructuring) reduced to 2.3% of loans 2.9% in Q3FY21. Non NPA provisions was 1.95% of loans (80 bps of Covid provisions) to provide strength to balance sheet.

Advances growth picked up to 9.2% YoY with improvement in corporate credit and double digit expansion in SME book seen after many quarters. As per the mgmt, corporate banking business consolidates among larger banks, thereby AxisB to remain among key beneficiaries.

Higher standard assets provisioning, low restructuring book and cautious disbursement approach provides comfort on assets quality front. Further, restoration of credit growth in corporate & SME segments to boost earning. Though continued higher slippages from retail requires close watch amid fresh uncertainty brought in by second wave of Covid. We maintain our ‘Hold’ rating to stock with revised target price to Rs780 valuing bank at P/ABV of 2.0xFY23E

NII growth eases; profit rises driven by decline in provisioning

NII grew at multi-quarter low at 11% YoY due to decline in interest income. As per mgmt, increasing proportion of secured lending and high liquidity on balance sheet weighed on yield. Interest cost which contracted by -15.2% YoY, though’ offset the impact as NIM declined modestly 3bps QoQ to 3.56%. Other income grew by 17.1% YoY due to strong fee income (15.2%) mainly retail fee as disbursement picked up during quarter. Trading gain was high due to strategic sale of investment amounting to Rs300 cr. C/I ratio reduced to 43.8% (from 45.3% in Q3FY21) because of strong other income growth despite 8.4% YoY increase in OPEX. Employee cost remained high due to gratuity provisions. Provisioning contracted by -57.4% YoY, thereby providing a boost to PAT which rose to Rs2,677 cr.

Advances growth picked up; Corporates, SME books get traction

Advances grew by 9.2% YoY amid broad based growth across segments. Corporate growth picked up to 7.5%, while SME witnessed double digit growth at 12.8% YoY indicating that the mgmt restored growth in this segment. As per mgmt, AxisB got opportunities in mid corporates and govt business while large corporates are focusing on deleveraging. Within retail segment, bank continue to focus on secured lending like home loans (~12.7% YoY), LAP (9.5% YoY) while unsecured retail credit contracted by ~-2.6% YoY. Deposits grew by 10.5% YoY and within this CASA grew by 20.5% YoY with share rising to 44.9%

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