Axis Bank: Adequate liquidity in the system now

Update on the Indian Equity Market:

Taking the cues from global markets, Nifty opened positive on Tuesday. The gains were wiped out shortly on the back of the weak economic data released on Monday evening.  The index of eight core infrastructure industries declined 0.5% in September, as compared to 2.7% in the month of August. The Nifty closed the day 115 points lower at 11,359. Among the index, YESBANK (-22.2%), ZEEL (-10.8%) and INDUSINDBK (-5.6%) were the top losers while BPCL (4.9%), M&M (2.2%) and HDFCBANK (1.9%) were the top gainers. All the sectoral indices closed the day in red with Media (-4.3%), Realty (-4.1%) PSU Bank (-3.8%) led the chart.

Axis Bank: Adequate liquidity in the system now

Key takeaways from the interview of Mr Amitabh Chaudhry, Chief Executive Officer, Axis Bank; dated 1^st October 2019 in Mint:

• The Government has taken a lot of steps with a series of announcements in the last few months. As a result, the signs of positive sentiment are visible. In terms of auto loans, the bank is witnessing applications rise 15-20% month-on-month. The same thing is also happening on the mortgage side.
• The next three to four weeks will be very crucial for the economy as the festive season is on. If these weeks can demonstrate positive momentum, it will continue further in the long run as well. The issue is not that money is lacking but whether the bank can find the right people to lend.
• While the NBFCs (Non-Banking Financial Companies) have been quite vocal and transparent about their asset-liability situation, a lot of NBFCs have not really come out in terms of sharing and being more transparent about the quality of their asset book. There are question marks around that.
• About the recently completed Qualified Institutional Placement (QIP) worth ₹ 12,500 cr, he mentioned that the bank went to the market with ₹ 10,000 cr plus ₹ 2,500 cr and got demand for ₹ 13,000 cr. It was a gutsy move in this kind of economic environment.  When asked about the quality of investors, he said that the issue was subscribed by long-term long-only investors.
• With the completion of QIP, he expects the CET-1 (Common Equity Tier 1) ratio to be closed to 14%. This puts the bank in the same zone as some of the best banks.
• During the 1QFY20, the bank reported slippages more than expected. It was a combination of two-three factors. First, the bank is trying to be more on a conservative side. Second, there were some assets that have been in the BB and below book for a long time. Given what has been happening in the National Company Law Tribunal (NCLT) and the pressure from regulatory agencies and the economic situation in the country, some of the assets did slip. It will take some time to manage this book.
  

Consensus Estimate (Source: market screener website)

• The closing price of AXISBANK was ₹ 679/- as of 01-October-19. It traded at 2.2x/1.9x /1.6x the consensus book value for FY20E/ FY21E/ FY22E of ₹ 305/353/412 respectively.