Private CAPEX visible as demand came back post 2nd wave – Axis Bank

Update on the Indian Equity Market:

On Wednesday, Nifty ended higher at 17,470 (+1.7%). PSU BANK (+2.6%), MEDIA (+2.5%), and AUTO (2.3%) were the top sectoral gainers and there were no sectoral losers. Among the NIFTY50 stocks, BAJFINANCE (+3.6%), MARUTI (+3.2%), and HINDALCO (+3.1%) were the top gainers while HDFCLIFE (-1.2%), KOTAKBANK (-0.8%), and POWERGRID (-0.3%) were the top losers.

Edited excerpts of an interview with Mr. Amitabh Chaudhry, MD and CEO of Axis Bank with CNBCTV18 on 7^th December 2021:

• After the 2^nd wave of COVID-19, the credit demand came back, government spending increased, the festive season also went well, and the reinvestment coming back. RBI data shows corporate growth in October-2021 after the consistent decline in the previous 12 months.
• The government spending increased across all sectors, especially in Infrastructure and Defence. Mr. Chaudhry said private capex is visible in refineries, renewable energy, data storage, warehousing, logistics, and commodities. He expects in the next 9 to 12 months real capex will resume but it’s dependent on the virus situation.
• Chaudhry said the bank’s growth is in line and similar to its peers in sectors in which Axis Bank wants to grow.
• The Bank did not see any growth in the large corporate segment due to the pricing. It sees the rates in this segment are not similar to the one it wants to lend at. As the private capex and risk premium come back then it will start lending again to the large corporates.
• Overall Axis Bank’s unsecured loan is under control within the risk guidelines. It sees some scope of growth in the credit card segment, as the AUM in the credit card declined post-Covid and is now recovering.
• On the unsecured personal loan side, Axis Bank sees decent growth and expects that to pick up as the market for personal loans is huge. On the credit card side, it has seen good acquisition momentum, and Axis Bank continues to sign up new alliances and that should reflect on the credit card segment growth.
• Chaudhry said the granularity of their deposit franchise suffered over the last 5 to 7 years and Axis has been gradually building it back. From 2020 onwards every quarter their CASA deposits growth has been catching up with industry leaders and the transformation that they are undertaking on their liability side will continue to add that growth going forward.
• Chaudhry further said that the kind of deposits they have, the outflow percentage as decided by RBI are higher and they have a higher proportion of their assets and investments which carry lower interest margins.

Asset Multiplier Comments:

• We expect margins to improve in the near-term on the back of an improvement in its product mix which is expected to change in favour of retail segments, granular liability franchise, and a reduction in the mix of Rural Infrastructure Development Fund (RIDF) bonds.
• Stable asset quality, higher recoveries and healthy provision coverage ratio of ~70% coupled with additional provision buffer is likely to support bank’s balance sheet from any potential stress.

 Consensus Estimate (Source: market screener and TIKR websites)

• The closing price of AXISBANK was ₹ 696/- as of 08-December-21. It traded at 2x/1.6x/1.5x the consensus BVPS estimate of ₹ 369/417/475 for FY22E/ FY23E/FY24E respectively.
• The consensus target price of ₹ 948/- implies a PB multiple of 2.3x on FY23E BVPS of ₹ 417/-.

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