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Axis delivers decent growth, asset quality stable

Axis Bank offers a wide range of banking services in India that includes cash and credit management services, retail banking, investment management and treasury services amongst others.

* NII up 17.4% YoY (+9.5% QoQ), with similar growth in operating profit on the back of further decline in interest expenses. NIM up at 3.84%.

* CASA to deposits ratio at 44.7% (vs. 44.0% in Q3FY21). Cost of funds down to 3.77% (as against 4.3% in Q3FY21 and 3.87% in Q2FY22).

* Bank issued a record high of over 7.7 lakh credit cards during Q3FY22.

* Continued growth in deposits and advances, stable asset quality, and healthy provisions in place coupled with further reductions in gross and net NPA levels to drive banks’ performance over the near to medium term. We reiterate our BUY rating on the stock with a rolled forward target price of Rs. 944 based on roll forward 2.0x FY24E BVPS.

Net interest margin expand on lower cost of funds

During Q3FY22, Net interest income (NII) rose 17.4% YoY to Rs. 8,653cr (+9.5% QoQ), supported by lower interest expenses as cost of funds further reduced to 3.77% (vs. 4.3% in Q3FY21). Interest income grew 11.9% YoY to Rs. 17,261cr, with Net interest margin (NIM) improving to 3.84% (vs. 3.82% in Q3FY21 and against 3.66% in Q2FY22). Non-interest income soared 31.1% YoY to Rs. 3,840cr, with fee income growing 15.1% YoY to Rs. 3,344cr. Total provisions saw a significant reduction to Rs. 1,335cr (-64.5% YoY), of which specific loan loss provisions stood at Rs. 790cr. The bank currently holds cumulative provisions (excl. NPAs) of Rs. 13,404cr as of Q3FY22.

Key concall highlights

* Management expects NIM for Q4FY22 to be in the range of 3.45-3.5%, while Costto-assets ratio is expected to be at 2.2 by FY22-end.

* Total outstanding COVID-related restructuring stood at Rs. 4,463cr (0.63% of gross customer assets).

* Gross NPA ratio during the quarter stood at 3.17% (-138bps YoY, -36bps QoQ), with provision coverage ratio (PCR) at 72%. Net NPA ratio improved to 0.91% (- 28bps YoY and -17bps QoQ).

* On a cumulative basis, the total adequacy ratio improved to 18.72% and CET-1 to 15.33%. Bank called back Rs. 3,500cr worth of Tier-1 capital during Q3FY22.

Axis may takeover Citi’s India retail business soon

Axis Bank is nearer to closing the deal as it looks to takeover Citi’s domestic consumer business soon as per new reports. The deal is valued at approximately USD 1.5bn and will provide Axis access to Citi’s 35 branches and 4,000+ manpower, in addition to its portfolio of retail loans worth around Rs. 28,000cr and credit card book of approx. Rs. 9,000cr. Citi had a market share of 4.2% in credit card issuances with nearly 2.58mn credit cards outstanding, 0.6% share in advances and 1.1% in deposits as of Oct. 2021.

Outlook and valuation

Bank’s asset quality continues to remain stable even as its NPA levels continue with a downward trend. With further reduction in cost of funds, steady growth in advances and deposits and adequate provisions, Axis Bank is well placed among its private banking peers. We hereby reiterate our BUY rating on the stock with a rolled forward target price of Rs. 944 based on 2.0x FY24E BVPS.

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