Contingent provisioning stays intact, provide comfort on the trajectory ahead: Axis Bank reported an in-line Q1FY22, with a PAT of Rs 21.6billion and core PPOP development of 13% YoY. Business development remains flattish, though margin moderated by 10bp QoQ due to interest reversals, excess liquidity, and modify in its solution mix. Fresh slippages stood elevated at Rs 65.2billion (Rs 52.8billion in 4QFY21), led by the retail segment (84% of total).
As a outcome, asset high quality ratios deteriorated by ~15bp QoQ. Restructuring stood at .33% of loans (further 11bp of restructuring, which is authorized, but not implemented). While slippages could stay elevated in the close to term, healthier PCR of ~70%, coupled with further provision buffer of 2% (like typical provisions) is most likely to defend the balance sheet against any possible anxiety. We estimate AXSB to provide a RoA/RoE of 1.6%/15.2% in FY23E. We preserve our ‘buy’ rating.
Business development remains flat margin declines by 10bp sequentially : PAT stood at Rs 21.6billion (in line) in 1QFY22, with a PPOP of Rs 64.2billion (up ~10% YoY in line). NII grew 11% YoY (+2.7% QoQ), though margin fell 10bp QoQ to 3.46% due to interest reversals on slippages, larger liquidity, and modify in solution mix. Other earnings grew 39% YoY (-23% QoQ), with charge earnings increasing 62% YoY to Rs 26.7billion (-21% QoQ) impacted by muted business enterprise activity.
Treasury gains stood at Rs 5billion. Opex grew 32% YoY due to raise in employees expense (+32% YoY) and collection costs. C/I ratio stood at 43.5% (v/s 43.8% in 4QFY21). Core PPOP grew 13% YoY to ~Rs 59.2billion. Provisions stood at Rs 35.3billion (-20% YoY/+7% QoQ). The bank presently holds an further provision buffer of ~2% of loans. AXSB implemented a restructuring of Rs 21.9billion (.33% of loans), with a PCR of 23%. It has an further 11bp of restructuring, authorized, but not implemented.
Loan book grew 12% YoY (flat QoQ), with retail loans increasing 14% and retail disbursement up 3.33x (sequential decline). Also, its corporate/SME portfolio grew by 8%/19% YoY. On the liability front, deposits grew ~2% QoQ, led by 7% development in term deposits. CASA ratio moderated to 43% (quarterly typical CASA stood at 42%). On the asset high quality front, slippages stood elevated at Rs 65.2billion, led by the retail segment (84%), though upgrades/recovery and create-offs stood at Rs 25.4billion and Rs 33.4billion, respectively. The GNPA/NNPA ratio improved by 15bp QoQ every to 3.85%/1.2%, with PCR ~70%. Funded/non-funded BB and beneath pool improved to `80.4billion/`44.2billion (~2% of loans).
Highlights from the management commentary: Gross retail slippages stood ~Rs 54billion (84% of total slippages). Around 55% of Retail slippages came from secured goods, exactly where the LTV is 35-55%. Demand resolution declined more than Apr-May’21. It reached 99.5% of Mar’21 levels in Jun’21. Check bounce prices have been larger more than 1QFY21, but have been comparable to Mar’21 levels in Jul’21. Around 99% of restructuring is backed by safety, exactly where the LTV is 40-60%. Total ECLGS disbursements stood at Rs 121billion (97% is beneath ECLGS 1 and 2, though it was nil beneath ECLGS 4).