Axis Bank Ltd. share price target

Core PPOP was better with decent NII and strong control on opex; earnings were lower on higher contingency & NPA provisions Axis bank's earnings came in lower than estimates at Rs13.7bn (PLe: Rs18.6bn) despite better other income and strong opex gains which were offset by higher contingency provisions and slightly slower NII. Bank gave out new & additional disclosure on stress book outside the BB & Below which...

Axis Bank posted mixed performance for the quarter. While operational performance was in-line, the asset quality performance, especially the outlook therein deteriorated. This offset the optically stable headline asset quality. The addition to the stressed pool by ~Rs 10,000 crores, along with possible exposures to an entity in the Restaurant business (which will likely add to the above) is an overhang. As a result, the total non-NPL stress is now at 4% of loans. We believe these disclosures are likely to delay the RoE expansion...

NII increased 13% YoY (in-line), NIMs fell 5bps QoQ to 3.4%. Other income grew 32% YoY to INR38.6b, led by treasury gains of INR8.3b and strong traction in retail fee (+28% YoY). Corporate fees declined 1% YoY to INR2.7b. Loan growth stood at 13% YoY to INR4.9t. Domestic loans grew at 19% YoY, led by 22% YoY growth in retail loans. Overseas book declined 34% YoY and formed 7.2% of total loans. Deposits grew at 21% YoY (-1% QoQ), led by 34% YoY growth in TD deposits. Daily average CASA was stable sequentially at 41%, though period-end CASA declined 300bp QoQ....

Axis Bank's (AXSB) Q1FY20 PAT at Rs 13.7bn fell short of our/consensus estimates on high provisions.

Maintain BUY with SOTP value of Rs 895 (2.8x FY21E ABV of Rs 309 + Rs 30 for subs). Over FY19, AXSB has demonstrated meaningful improvement in performance metrics. Profitability improved for the retail and wholesale businesses (loss in FY17 & 18). After growing briskly over FY17-18, SA traction slowed for the bank and system. With moderating slippages and LLPs, AXSB changed course over FY19 towards normalised earnings and RoAAs. Improving asset quality (with rising coverage), better risk practices, focus on high yielding retail products and cost consciousness will drive earnings.

We like Max Life given improving product mix (in favor of protection) and attractive valuations (~30% discount to SBIL/IPRUL). Having said that, the final outcome of partnership with Axis Bank i.e. renewal or Axis purchasing stake in MAXL remains a key monitorable. Driven by an increasing share of protection (10.2% share, +230 bps YoY) and lower effective tax rate, VNB margins expanded +150bps YoY to 21.7% (vs. 20.6 est). Consequently, absolute VNB grew a whopping 30.5% YoY to Rs 8.6bn. An upward revision in our margin estimates has boosted our TP to 661 (FY20 EV + 15.6x FY21E VNB).

Axis Bank is the third-largest of the private-sector banks in India offering a comprehensive suite of financial products.

The appointment of a transformational leader at the helm along with a near complete top mgt rejig make AXSB stand out vs. peers. This is supported by change in credit/ risk practices. (1) Improving margins, (2) Reduction in LLPs and (3) Improving operating efficiency will facilitate the achievement of the guided RoEs (~18%) by FY21E. While numerous strategic changes and the qtr's performance lend credibility to this target, we have conservatively factored in RoAEs of 15.5% over FY19-21E. AXSB remains our preferred bet amongst pvt banks. The strong 4Q performance bolsters our stance on meaningful change at the bank. Maintain BUY with a TP of Rs 896 (2.8x Mar21E ABV of Rs 310+Rs 30 for subs)

Slippages have declined to 2.4% as against 3.2% last quarter. GNPA declined by 49bps QoQ to 5.3%. Unrecognized stressed assets (BB & below + SR + restructuring) book has declined by another 12bps during the quarter and 140bps over last 3 quarters to 2.2% of loan book. Loan growth moderates at 13%, driven by retail and SME segment. NII as well as PAT is in line with our expectations. We roll forward our valuations to FY21, upgrading our rating to BUY, increasing our TP to Rs860 (Rs710 earlier) by valuing the...