Buy Axis Bank Ltd For Target Rs. 1,550 by Prabhudas Liladhar Capital Ltd
Margin challenges persist
AXSB saw a soft quarter as core revenue i.e. NIM and fees were a miss; however, core PAT was a beat due to lower opex. Reported NIM was down 16bps QoQ to 3.46% and mgmt. attributed the fall to agri interest reversal (3bps), loan mix change (4bps) and pricing (9bps). However, NIM has fallen by 34bps YoY; part of it could be explained by repo cut, however, mix change YoY has also contributed; corporate share rose by 462bps while avg. CASA fell by 150bps. Opex remains a silver lining and is likely to further moderate amid loan pricing challenges at industry level. We keep multiple at 1.7x on FY28 core ABV, but trim TP to INR 1,550 from INR 1,600. Retain ‘BUY’
Soft quarter. Beat on core PPoP due to lower opex; reported NIM/fees were a miss:
NII was in-line at INR 146.5bn (PLe INR 146.8bn) with NIM (calc.) at 3.50% (PLe 3.52%); reported NIM was down 16bps QoQ to 3.46%. Loan/deposit growth at 19.0%/18.2% YoY met PLe. LDR was steady QoQ at 91.9%. Average CASA improved 76bps QoQ to 35.0%. Other income was lower at INR 67.4bn (PLe INR 69.5bn) due to 4.3% miss on fee. Opex at INR 97.2bn was 5.9% lower. Core PPoP at INR 110.8bn was a 2.8% beat; PPoP was INR 116.6bn. Asset quality was steady; GNPA was marginally higher at 1.28% (PLe 1.25%) due to lower recoveries. Slippage was INR 55.7bn PLe (INR 57.7bn), provisions at INR 22.2bn were broadly in-line. Buffer provisions were intact at INR 70bn (55bps of net loans). Core PAT at INR 66.8bn was 4.6% above PLe; reported PAT was INR 71.1bn
Loan growth was led by agriculture:
Advances grew 2.3% QoQ, mainly led by corporate (+5.2%), agri (+14.3%) and SME (+3%) while retail growth was muted (+0.3%). ECLGS sanctioned was INR 50bn while disbursal till date was INR 24bn, primarily to borrowers in manufacturing and trading sectors Mgmt. reiterated that the ongoing wholesale-led mix shift (contributing to ~16 bps NIM drag) is expected to reverse over time. We are factoring 14/13% loan growth in FY27/28E. However, with CET-1 at ~15%, LDR at 92% and LCR at 119%, deposit growth aided by FCNR remains a key to fund loan growth.
NIM falls QoQ; opex sees one-off reversals:
NIM decline of 16 bps QoQ was led by, 3 bps by agri linked interest reversal, 4 bps by balance sheet mix change and 9 bps due to pricing change. Opex decline included INR 2.7bn one-off reversal of a Q4 provident fund charge (linked to a G-Sec yield spike that has eased), gratuity item and variable pay. Mgmt. expects a higher provision run-rate in the first year of ECL transition.
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