Valuation comfort likely to limit downside for Axis Bank's stock

Given a current market price of Rs 860 and valuations ranging from between Rs 1,100 and Rs 1,225, there could be a decent upside.

Devangshu Datta reports.

Axis Bank’s results for the fourth quarter of the 2022-23 financial year (Q4FY23) were skewed due to large one-off charges related to its acquisition of Citi’s retail business.

Axis reported a loss of Rs 5,730 crore on account of exceptional items of Rs 12,350 crore (net of tax) towards Citi’s acquisition, policy harmonisation etc.

Excluding this one-off, the adjusted net profit or profit after tax (PAT) would be Rs 6,630 crore, up 61 per cent year-on-year (YoY).

Loan growth was healthy at 16 per cent YoY and 7 per cent quarter-on-quarter or QoQ (ex-Citi).

Deposit growth was also good with increase in CASA (current and ratios.

Fresh slippages moderated to Rs 3,380 crore, and led to improvement in asset quality.

The restructured book was at 0.22 per cent of customer assets in Q4FY23.

The FY23 adjusted PAT grew 68 per cent YoY to Rs 21,930 crore while the reported figure was Rs 9,580 crore.

The net interest income was up 33 per cent YoY and up 2.5 per cent QoQ to Rs 11,740 crore.

Other income grew 16 per cent YoY with 24 per cent YoY growth in fee income and treasury gains of Rs 83 crore.

The pre-provision operating profit grew 42 per cent YoY to Rs 9,170 crore in Q4 while it was at Rs 32,050 crore for FY23.

The net interest margin (NIM) margin was flat (down 4 basis points or bps QoQ) at 4.22 per cent (adjusted basis) in Q4FY23.

Total provisions declined to Rs 306 crore and the annualised net credit cost dropped to 22 bps.

The bank did not utilise any Covid-19-related provisions and it had held an additional provision buffer (including standard asset provisions) of Rs 11,930 crore (1.4 per cent of loans).

The loan book grew 16 per cent YoY and 7 per cent QoQ, with retail/SME loans up by 7 per cent and 13 per cent respectively QoQ and corporate loans growing at 6 per cent QoQ.

Deposits grew 10 per cent YoY and 7 per cent QoQ with CASA deposits up 10 per cent YoY.

The CASA ratio increased to 46 per cent while CASA plus retail term deposits stood at 79 per cent.

The moderation in fresh slippages to Rs 3,380 crore versus Rs 3,810 crore in Q3, plus good recoveries and upgrades led to QoQ improvement of 36 bps and 8 basis points, respectively, in gross non-performing assets (GNPA) and net NPA ratios.

The net NPA ratio dropped to 0.39 per cent, while provisioning coverage ratio (PCR) was stable at 81 per cent.

Restructured loans stood at 0.22 per cent of customer assets with PCR of 22 per cent.

The BB and below loan pool fell to 0.65 per cent in Q4 versus 0.93 per cent in Q3.

Management guidance showed confidence that healthy growth in corporate loans would continue.

The lender is committed to reducing its cost-to-assets ratio to 2 per cent in the medium term (from 2.4 per cent in Q4).

The bank expects loan growth for FY24 to be 400-600 bps higher than the industry average.

Although the stock lost 2.5 per cent on the results, most analysts hold ‘buy’ recommendations.

Given a current market price of Rs 860 and valuations ranging from between Rs 1,100 and Rs 1,225, there could be a decent upside.

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