Axis Bank Ltd. share price target

With the worst long behind AXSB (in terms of asset quality), the near term forewarning is not too disconcerting. As our earnings have consistently, and conservatively lagged consensus, they dip merely 3/4% for FY20/21E to factor in higher provisions. Numerous strategic changes, give us confidence on the bank's ability to face macro headwinds and thus stay put on its long term trajectory. In line operating performance and higher provisions resulted in a PAT miss. In spite of higher slippage guidance, our already conservative earnings havent suffered much. MAINTAIN BUY with a TP of Rs 900 (2.8x Jun-21E ABV of Rs 311 + Rs 27 for subs)

revenue. This resulted in a further improvement in Cost to Assets ratio to 2.08% from 2.13% in Q4FY19. The operating profit grew 35% to Rs 5893 crore. The bank has further improved Provision Coverage Ratio to 78% from 77% end March 2019. Asset quality continues to improve The bank has continued to reduce GNPA and NNPA for the 5th straight quarter to 5.25% and 2.04%, as compared to 5.26% and 2.06% end of March 2019....

Slippages came in higher at | 4798 crore vs. | 3012 crore in Q4FY19 led by corporate slippages of | 2128 crore though write-off of | 3005 crore aid in maintaining absolute GNPA numbers. Exposure to recently cropped 8 stressed corporates stood at ~| 12200 crore out of which | 2200 is classified as NPA and | 2900 crore is in BB & below book, leaving ~| 7000 crore of assets as standard and unprovided. Overall BB and below book continues to remain steady at | 7504 crore, flat QoQ (| 7467 crore in Q4FY19). Operating profit was at ~| 5893 crore, up 35% YoY largely led by strong...

Axis Bank reported Strong core operating performance; however asset quality pain continues.

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...

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 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...

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).