Axis Bank’s Q4FY21 earnings beat reaffirms our view that apart from strengthening the balance sheet (via prudent and conservative buffers), it is equally focusing on creating granularity to drive sustainable development and provide superior RoE. Key positives: Growth momentum right after failing to cheer in Q3FY21, caught up pace with peers increasing at 8% QoQ (9% YoY) and was broad-based across retail, SME and corporate slippages of Rs 52.9billion (<4% run price for Q4FY21 and <3% for FY21) with restructuring restricted to a mere .32% one hundred% provisioning on unsecured retail and SRs credit expense contained at 2.2% — a great deal reduce than 3% plus for 9MFY21 and charge revenue gained traction to 15% Y-o-Y development and Rs 7.9billion of treasury earnings.
What encourages: Not utilising or generating any additional contingency buffer (as opposed to peers) and carrying more provisioning of Rs 120 billion (~2% of advances) ‘BB’ & beneath declining to <2% (down >35bps QoQ). What failed to cheer: Despite 20bps Q-o-Q/110bps Y-o-Y advantage of funding expense, NIMs had been steady incremental small business written at reduce yields retail slippages are operating larger at ~4% in FY21. We anticipate earnings CAGR of >65% more than FY21-FY23E and RoE of >15% by FY23E.
Maintain ‘buy’ with a target value of Rs 942. Key dangers: Covid resurgence unfolding additional tension reduce-than-anticipated development can cap RoE improvement.
Gross slippages settle at <3% for FY21, lowest in 3 years: In Q4, gross slippages came in precisely in-line with expectations at Rs 52.85billion (<4% run-price). This quarter as nicely it was mainly dominated by retail segment (65%) and downgrades from BB &. beneath. Consequently, gross slippages in FY21 had been contained at <3% (Rs 172billion), reduce than in 3 years. Retail tension — a mix of secured as nicely as unsecured lending (mainly cards) — ran larger at ~4% (comparable to peers). Lower set of retail restructuring at .1% could be the rationale for elevated retail slippages. However, these are adequately offered for and written-off to the extent expected. BB & beneath pool, right after remaining sticky for couple of quarters, showed downward trajectory to <2% (from 2.3-2.4% in previous couple of quarters). More so, 38% of this pool is rated improved by at least one credit rating agency.
Credit expense settles reduce at 2.2% cumulative provisions at ~2% of advances. One of the essential drivers of earnings beat was credit expense becoming contained at 2.2% – a great deal reduce than 3% plus in 9MFY21. This is regardless of the bank generating more provision aggregating Rs8.0bn on accounting alter in provisioning prices on loans to industrial banking segment.
Plus, it has entirely marked down safety receipts from Rs16.8bn to zero (one hundred% offered by FY21). Specific loan loss provisions in Q4 had been Rs70.4bn (which includes provision of Rs42.7bn on pro forma slippages offered earlier).