Axis Bank 3QFY20 Results First cut – Credit growth/margins improve, but fresh NPA formation remains elevated
Axis Bank has reported better than expected margins, but higher opex and LLP led to earnings miss of 13% to a PAT of Rs17.6bn. Bank has benefitted from lower tax rate in 3Q. Fresh Slippages remain elevated at Rs62bn, but GNPA ratio was stable qoq at 5% due to better recovery/upgrades.
Other highlights:
· Loan growth has improved a bit to 15.8%/5.5% mainly led by strong traction in retail book. Bank believes that de-growth in international book has run-down its course and the overall blended credit growth now should track domestic credit growth.
· NIMs have been better than expectation at 3.6%, up 6 bps qoq due to better LDR and recent capital raise.
· Fee growth remains subdued at 6% yoy dragged by corporate fees; retail fees is still trending well at 20% yoy.
· Fresh NPA formation remain elevated at Rs62bn including Rs10.9bn from investment book (mainly HFC) and balance being from loan book. Gross corporate slippages were at Rs39bn, of which 81% were from corporate stress pool.
· Outstanding BB & Below corporate loans declined by 18% QoQ to Rs51.3bn (0.9% of customer assets). However, bank’s NFB book has gone up by 14.6bn mainly due to including of a telecom a/c (possibly Vodafone) and Broking (possibly Karvy). Thus, overall stress pool including FB/NFB stress pool stands at 2.3% of loans, flat qoq.
· Bank’s Tier I capital stands healthy at 14.3%, post recent capital raise.
Outlook: Currently, we have a Buy rating due to visibly strong retail book acceleration as guided which will be long term positive for margins, expected better return ratios over FY20-22E, healthy capital position and reasonable valuations after the recent correction.