Axis Bank reported a 19% yoy decline in 1QFY21 earnings due to higher provision for bad loans.

Chirag Batavia • 5 October 2020

Axis Bank Ltd

 The Bank reported a 19% yoy decline in 1QFY21 earnings due to higher provision for bad loans. Impact on revenue growth was higher given the lower activity level. Net NPLs (Non-performing loans) are at a four-year low 1.2% qoq in 1QFY21.

 Loan growth was 13% yoy while NII (Net interest Income) grew at 20% & NIMs (Net Interest Margins) declined ~0.15% qoq largely on higher liquidity in 1QFY21.

 We see a gradual shift in discussion by investors towards collections as a better benchmark to understand impairments.

 We expect loan growth of 13.6% along with NII growth of 14.2% in FY22E. NIM to remain stable at ~3% by FY22E as we see marginally better pricing. We expect gross NPLs & Net NPLs to decline 4.2% & 1.2%, respectively in FY22E.

 Axis Bank is well positioned given its lower exposure in the SME and self-employed segment. It is quite likely that Axis Bank would emerge stronger relative to its peers.

 We are valuing the bank at 1.9x book and ~15x March 2022E EPS for RoEs (Return on equities) of ~12%. Near-term outlook is hazy for all banks, we believe a healthy asset mix, superior customer profile, liability strength and capital comfort will allow Axis Bank to ride this challenging period.

Axis Bank Ltd: BUY
Dated: 5th October 2020
CMP: Rs.444
Fair Value: Rs.600
Potential Upside: 35.13%
Market Cap: Rs.1,35,274 Cr
Time Frame: 12 months

Note: The above is a brief note on the company, based on the inputs of KIE research report dated 21st July, 2020, which is available on their website at: https://www.kotaksecurities.com/ksweb/ResearchCall/Fundamental.      
Disclaimer: http://bit.ly/2n5AxIE


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