Axis Bank: Banks aren’t out of the woods yet, but closer to the tail

Dated: 17th July 2019

Interview with Mr Pralay Mondal (the head of retail banking at Axis Bank from ET NOW dated 17th July 2019)

Interview highlights:
 The banking industry is in a perennial clean-up cycle and we are in the midst of an NBFC and real estate crisis. The NBFC model does not work; they cannot compete with banks on pricing. Banks are coming out of a very poor NPA cycle, but according to him, it is not out of the woods yet 
 The good news is that the clean-up is visible, we know what the issues are, it can get worse, but you have a fair understanding of the situation. The bad news is that globally, there are a lot of challenges — the US is not looking very well, we are caught amid trade wars and India is not immune to this. 
 The auto consumption is down, auto dealers are in shambles. There is clear demand destruction happening there. The consumption economy is not doing so well, there is a clear impact on mortgages. 
 The discretionary part, which is the personal loans, credit cards and unsecured loans where we don’t have a full understanding of the end-use, which is growing at a very rapid pace. 
 One segment says that the credit-GDP penetration is very low, so we have big opportunities at the bottom of the pyramid segment. If you look at companies like Titan, HUL, ITC, Hero Honda, consumption is not taking off, so we need to understand that bank is a surrogate of all of this. 
 If the quality of NBFC portfolios being sold is good then the good portfolio is moving. Some of that will play out eventually, but it may not hit the banks hard.

Consensus estimates: (source market screener website)
 The stock price is Rs 754/- as of close price of 17th July 2019. It trades at 2.5x/ 2.2x/ 1.8x the consensus book value for FY20E/ FY21E/ FY22E of Rs 303/ 346/ 419 respectively.
 The consensus price target is Rs 851/- valued at 2.5x FY21E book value of Rs 346/-.