We hosted Amitabh Chaudhry (MD & CEO), Puneet Sharma (CFO) & Abhijit Majumdar (Head-IR) for investor calls. Mgt. highlighted that general trends are enhancing & festive season went improved than expectations of Oct. While good quality of portfolio is faring in line with top peers, Axis has greater buffer-provisions. RBI’s actions with DBS-LVB & new banks can raise competitors it may possibly enable easier transaction with Max and want to merge NBFC subs., but clarity awaited.
Recent RBI’s action indicates much more competitors: Mgt. highlighted that a mixture of permitting DBS to obtain neighborhood bank (LVB) & RBI committee’s suggestions to enable much more banks (conversion of NBFCs to bank or providing bank-licence to corporates) indicate towards improved competitors in the sector. Hence, banks like Axis will want to continue investing in platforms and network.
The committee suggestions enable Axis to hold 20% stake in insurance coverage subsidiary, which could make it easier to take stake in Max Life — possibly it will retain 3% amongst subsidiaries & rest at bank level. While committee seeks to merge NBFC subsidiaries with bank, the definition of ‘similar-business’ requirements to be clarified. Holdco structure for banks will be explored post tax-neutrality is accomplished, but dual listing is improved avoided.
Business enhancing provisions greater than peers: As per mgmt, consumption trends in the course of festive season have been improved than a month back expectations. Collections (97% in Q2) have held up effectively, but sustainability requirements to be observed as pent-up demand & greater savings due to moratorium may possibly have boosted it. In SME, slippages need to be manageable as Axis had turned cautious ahead of Covid and ECLGS gives a lifeline. In retail, trends need to be in line with private peers.
Axis has taken a selective stance towards restructuring and expects restricted restructuring slippages will be elevated in H2 as moratorium/standstill loans are downgraded. Mgmt clarified that even as portfolio trends have been equivalent to peer banks, Axis has greater provision buffers (1.8%)— it is watchful about extra provisioning requirements.
Others: churn at mgmt, portfolio purchases, overseas book—While there was some churn in senior mgmt in current months, bank has been in a position to refill these positions and expects this to stabilise. It has also continued investing in branches/ new employees. Mgmt is open to producing some portfolio acquisition, but not keen to obtain NBFC/ firm as it is complicated. Overseas lending small business will stick only to clientele which are India linkage or relevant for Indian small business.
Maintain Obtain: We see earnings recovering from FY22 onwards with enhanced development and reduced credit expenses. We raise TP to Rs 700 primarily based on 2.1x Sep-22 adjusted PB to element in enhancing development/asset good quality outlook. Buy rating stays.