Axis Bank Ltd (AXS)- 1QFY20 Result update- Operating performance drives the earning momentum.

Dated: 31st July 2019

Key financial performance:
1) Loan book grew of 13% YoY in this quarter led by domestic loan book growth of 19% YoY. The international loan book declined 34% YoY. Retail loan book continued to be the key growth driver- growing at 22% YoY. 
2) Deposit grew 21% YoY in this quarter. The CASA ratio stood at 60%. The deposit growth was led by 37% YoY growth from the term deposits while CASA grew 3% YoY.
3) Net Interest Income (NII) grew 13% YoY at Rs 58,437 mn with Net Interest margin (NIM) of 3.5%. NII for 1QFY19, there was a one-time positive impact of Rs 2,490 mn due to the recovery of a large IBC case. Adjusting this one-off, NII has seen a growth of 19% YoY.
4) Non-interest income for 1QFY20 grew 32% YoY to Rs 38,690 mn driven by fee income that grew 26% YoY to Rs 26,630 mn. Trading profit stood at Rs 8,320 mn driven by G-Sec gains. Miscellaneous income for 1Q stood at Rs 3,730 mn, primarily dividend from subsidiaries and recovery in written-off accounts.
5) PPOP grew 35% YoY, with contribution from all revenue and cost line items. 
6) Provisions for the quarter stood at Rs 38,146 mn, a 14% increase from a year-ago period.
7) Net profit for the year grew 95% YoY at Rs 13,701 mn on the back of an improved performance at the operating level & efficient management of the costs.
8) NPA ratios for the Bank remained stable during the quarter. GNPA ratio stood at 5.25% and the NNPA ratio stood at 2.04% which was slightly lower than the previous quarter. (GNPA at 5.26%, NNPA at 2.06% in 4QFY19)
Management Commentary:
1) Loan Book:
a) The Bank’s strategy on retail assets continues to be centred around existing customers of the Bank. 83% of retail assets originations in 1Q was from existing customers. 98% of the Bank’s credit card and 93% of personal loan originations in the quarter were from existing customers of the bank.
b) The Bank’s Auto Loans business: Auto loans portfolio has grown by 36% YoY. The growth is evenly spread across the country. Auto loan disbursements have grown by 19% YOY in 1QFY20. 
c) SME lending growth was tepid at 8% YoY. Term loans and working capital loans grew by 3% and 9% YoY, respectively.
d) In the Corporate Bank, domestic loan growth stood at 16%, and the international book de-grew 39% YoY.
2) The management expects the domestic loan book of the Bank to grow 5-7% faster than industry.
3) For FY20, AXS expects NIM to remain broadly flat YoY, with an upward bias. They expect NIMs to settle in the range of 3.5-3.8% over the medium term.
4) Cost to the asset to stabilise at the current level of 2.08% in the near term before trending down to 2% level in the medium term.
5) AXS increased provisioning on certain non-banking assets held on their books. This was an additional provision of Rs 5,350 mn during this quarter. This quarter, they made specific provisions for all Non-Fund Based exposures that they have to borrowers that are either already NPA or are in the BB & Below pool. As they transitioned to this new regime, the bank made an additional provision of Rs 4,590 mn during the quarter.
6) The Bank’s Provision Coverage on Non-Performing Assets stands at 78%, compared to 69% in 1QFY19 and 77% in 4QFY19.
Consensus Estimate (Source: market screener website)
• The stock price was Rs 669/- on 31st July 2019 and traded at 2.2x/1.9x/1.6x consensus Book value of Rs 306/346/ 415 for FY20E/21E/22E respectively. 
• Consensus target price is Rs 847.5/- implying PB of 2.4x for FY21E BVPS of Rs 415/-

Note:
NII- Net interest income
NIM- Net interest margins
PPOP- pre-provision profits
NPA- Non-performing assets