RESULTS REVIEW 3QFY17 20 JAN 2017 Axis Bank NEUTRAL HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters Dire straits AXSB continued its weak performance in 3Q as well. While slippages were elevated at 5.2% ann., the sharp 4x sequential rise in ex-watchlist slippages was disappointing . Business momentum also stumbled with a ~2% sequential decline in loans (led by SME and corp) and deposits (FCNR redemptions of $1.62bn). NIM fell ~20bps QoQ with one off interest reversals on SDR and S4A exposures. The few positives include (1) Strong SA growth of ~27/10% leading to a 290bps QoQ rise in CASA ratio (47.6%), (2) Retail loan growth continued (+19%), (3) Higher treasury gains (Rs 15bn+) were utilised to strengthen PCR (64%, +400bps QoQ), (4) Proactive provision of Rs 2.6bn towards a non-funded exposure of Rs 3.8bn and (5) Retail fees fell only ~2%. While AXSB’s past aggression in corporate lending is showing up (stress is now in line with peers), we like the bank’s focus on retail franchise (on both sides of the B/S), healthy margin and CRAR. Maintain NEUTRAL with TP of Rs 501 (2x Dec-18E ABV). Highlights of the quarter Slippages remain elevated (albeit down QoQ) at Rs 45.6bn, 5.2% ann. It includes slippages from the watch-list of Rs 25.8bn and a relapse of Rs 8.1bn. Higher slippages from non watch-list (across segments) at Rs 16.3bn was a major negative. With aggregate stress level (watch-list, SDR, 5:25 and restructured) at ~5.1% and an increasing pain in non watch-list we have factored slippage at avg. ~3.6% over FY17-19E. Despite higher CASA ratio (47.6%; +290bps QoQ), a steady C- D ratio and lower slippages, NIM dipped ~20bps QoQ to 3.4%. This was led by one- time interest reversals of Rs 3.2bn on SDR and S4A exposures. With rising proportion of MCLR loans, fall in MCLR and CASA normalization, we factor NIM of 3.6% over FY17-19E. Loans grew a mere 10% YoY due to muted growth in corporate and SME portfolio (<5%). However, retail loans grew ~19%, despite slower traction in LAP, HL and agri segments. We have lowered our loan CAGR assumption to ~15% vs. 19% earlier. FINANCIAL SUMMARY (Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%) FY16 FY17E FY18E FY19E Net Interest Income 43,337 41,621 4.1% 45,139 -4.0% 168,330 178,531 203,601 241,214 PPOP 46,402 39,851 16.4% 41,002 13.2% 161,036 184,581 196,476 222,687 PAT 5,796 21,753 -73.4% 3,191 81.6% 82,237 36,702 60,781 101,955 EPS (Rs) 2.4 9.1 -73.5% 1.3 81.5% 34.4 15.3 25.4 42.6 ROAE (%) 16.8 6.7 10.3 15.5 ROAA (%) 1.67 0.66 0.96 1.38 Adj. BVPS (Rs) 212 195 222 260 P/ABV (x) 2.28 2.48 2.18 1.86 P/E (x) 14.0 31.5 19.0 11.3 Source: HDFC sec Inst Research INDUSTRY BANKS CMP (as on 19 Jan 2017) Rs 484 Target Price Rs 501 Nifty 8,435 Sensex 27,309 KEY STOCK DATA Bloomberg AXSB IN No. of Shares (mn) 2,391 MCap (Rs bn) / ($ mn) 1,157/16,980 6m avg traded value (Rs mn) 5,500 STOCK PERFORMANCE (%) 52 Week high / low Rs 638/373 3M 6M 12M Absolute (%) (9.7) (14.4) 23.1 Relative (%) (7.2) (12.7) 11.5 SHAREHOLDING PATTERN (%) Promoters 30.16 FIs & Local MFs 12.43 FIIs 48.62 Public & Others 8.79 Source : BSE Darpin Shah [email protected]+91-22-6171-7328
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RESULTS REVIEW 3QFY17 20 JAN 2017
Axis Bank
NEUTRAL
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
Dire straits AXSB continued its weak performance in 3Q as well. While slippages were elevated at 5.2% ann., the sharp 4x sequential rise in ex-watchlist slippages was disappointing. Business momentum also stumbled with a ~2% sequential decline in loans (led by SME and corp) and deposits (FCNR redemptions of $1.62bn). NIM fell ~20bps QoQ with one off interest reversals on SDR and S4A exposures.
The few positives include (1) Strong SA growth of ~27/10% leading to a 290bps QoQ rise in CASA ratio (47.6%), (2) Retail loan growth continued (+19%), (3) Higher treasury gains (Rs 15bn+) were utilised to strengthen PCR (64%, +400bps QoQ), (4) Proactive provision of Rs 2.6bn towards a non-funded exposure of Rs 3.8bn and (5) Retail fees fell only ~2%.
While AXSB’s past aggression in corporate lending is showing up (stress is now in line with peers), we like the bank’s focus on retail franchise (on both sides of the B/S), healthy margin and CRAR. Maintain NEUTRAL with TP of Rs 501 (2x Dec-18E ABV).
Highlights of the quarter
Slippages remain elevated (albeit down QoQ) at Rs 45.6bn, 5.2% ann. It includes slippages from the watch-list of Rs 25.8bn and a relapse of Rs 8.1bn. Higher slippages from non watch-list (across segments) at Rs 16.3bn was a major negative. With aggregate stress level (watch-list, SDR, 5:25 and restructured) at ~5.1% and an increasing pain in non watch-list we have factored slippage at avg. ~3.6% over FY17-19E.
Despite higher CASA ratio (47.6%; +290bps QoQ), a steady C-D ratio and lower slippages, NIM dipped ~20bps QoQ to 3.4%. This was led by one- time interest reversals of Rs 3.2bn on SDR and S4A exposures. With rising proportion of MCLR loans, fall in MCLR and CASA normalization, we factor NIM of 3.6% over FY17-19E.
Loans grew a mere 10% YoY due to muted growth in corporate and SME portfolio (<5%). However, retail loans grew ~19%, despite slower traction in LAP, HL and agri segments. We have lowered our loan CAGR assumption to ~15% vs. 19% earlier.
Funded watch-list falls 20% QoQ to Rs 111bn (3.2% of loans)
Non-funded watch-list at Rs 16bn (-15% QoQ)
Aggregate watch list at Rs 127bn i.e. 3.7% of loans vs. 4.4% QoQ
Below estimates with slower loan growth and interest reversal of Rs 3.2bn towards SDR and S4A exposures
LLP 4.1% vs. 4.2bps QoQ, as PCR improved ~400bps QoQ
Sharp drop led by interest reversal on SDR/S4A exposures
CASA growth was tepid (4%QoQ) due to a drop in CA (~6% QoQ); SA grew ~27/10% YoY/QoQ
Fees declined ~7% QoQ led by drop across segments, especially corp (-27% QoQ); Retail fees dipped a mere 2% QoQ
AXIS BANK : RESULTS REVIEW 3QFY17
Page | 3
Advances Grew 10% YoY Corporate And SME Decline QoQ
Source: Bank, HDFC sec Inst Research Source: Bank, HDFC sec Inst Research
Retail Loan Mix: Sharp Rise In Auto And CV Portfolio (%) 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Housing 64 63 53 53 50 48 48 48 47 45 46 45 47
PL & CC 10 10 9 9 9 9 10 10 11 11 11 12 12
Auto 11 12 10 9 9 8 8 8 8 9 9 9 10
Non -Schematic
6 6 5 6 10 12 11 11 11 10 10 10 8
Retail Agri - - 15 15 15 16 15 15 15 17 16 15 14
LAP 9 9 8 8 7 7 8 8 8 8 8 9 9
Source : Bank, HDFC sec Inst Research
Deposit Mix: CASA Ratio At ~47.6%; +290Bps QoQ; Avg CASA at 42%, +100Bps QoQ (%) 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
CA 16 17 15 16 16 17 15 17 16 18 15 16 16
SA 27 28 27 28 27 27 28 28 27 30 28 28 32
Retail TD 31 30 34 34 35 33 36 36 36 34 36 36 34
Others 26 25 23 21 22 22 21 20 21 19 20 19 19
Source : Bank, HDFC sec Inst Research
Retail book grew ~19% YoY to form ~43% of total loans Ex. FCNR redemptions, retail loans grew ~22% SME loans dipped ~6% and corp loans declined ~2% QoQ Incrementally ~83% of the sanctions are towards A+ corporates Amongst Retail segments, LAP, Home loans and Retail Agri loans witnessed a slower disbursement growth We are positively surprised by strong growth in Auto and CV portfolio SA grew ~27/10% YoY/QoQ, while CA deposits declined ~6% QoQ Avg. daily CASA ratio stood at ~42%, +100bps QoQ with Avg SA growth of 22% and CA growth of 22%
12.5
14.5
16.5
18.5
20.5
22.5
24.5
1,200
1,600
2,000
2,400
2,800
3,200
3,600
4,000
1Q
FY1
4
2Q
FY1
4
3QFY
14
4Q
FY1
4
1Q
FY1
5
2Q
FY1
5
3Q
FY1
5
4Q
FY1
5
1QFY
16
2QFY
16
3QFY
16
4QFY
16
1QFY
17
2QFY
17
3QFY
17
Advances (Rs bn) Growth (YoY, %)
Rs bn %
50 48 46 44 44 45 47 45 46 46 47 46 46 45 44
15 16 16 17 15 16 15 15 13 13 13 13 13 13 12
34 35 38 38 40 39 38 40 40 40 40 41 42 42 43
1QFY
14
2QFY
14
3QFY
14
4QFY
14
1QFY
15
2QFY
15
3QFY
15
4QFY
15
1QFY
16
2QFY
16
3QFY
16
4QFY
16
1QFY
17
2QFY
17
3QFY
17
Retail SME Corporate%
AXIS BANK : RESULTS REVIEW 3QFY17
Page | 4
Cost and Yield Movement % 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Fee Income Break-up: Retail Segment Dominates Fee Income Contribution Marginally Dips
Source : Bank, HDFC sec Inst Research
Source : Bank, HDFC sec Inst Research
Interest reversals of Rs 3.2bn for SDR and S4A exposures impacted NIM Domestic NIMs stood at 3.61% vs. 3.93% QoQ Fee de-growth was led by 27% QoQ drop in corporate fees Retail fees was relatively steady with a mere 2% QoQ dip, cushioned by cards income Retail fee forms 45% vs. 43% QoQ, while corp fee proportion dipped to ~20% vs. 25% QoQ
29 30 31 30 25 29 25 28 24 26 25 26 25 25 20
10 8 8 7 10 8 9 7
19 19 19 16 27 26 29
30 32 33 34 37 38 39 39 39 40 41 42 42 43 45
1Q
FY1
4
2Q
FY1
4
3Q
FY1
4
4Q
FY1
4
1QFY
15
2Q
FY1
5
3QFY
15
4Q
FY1
5
1Q
FY1
6
2Q
FY1
6
3Q
FY1
6
4Q
FY1
6
1Q
FY1
7
2Q
FY1
7
3Q
FY1
7
Retail Banking Business banking
Agri and SME banking Treasury
Large and Mid Corp%
-
1.0
2.0
3.0
4.0
5.0
1Q
FY1
4
2Q
FY1
4
3Q
FY1
4
4Q
FY1
4
1Q
FY1
5
2Q
FY1
5
3Q
FY1
5
4Q
FY1
5
1Q
FY1
6
2Q
FY1
6
3Q
FY1
6
4Q
FY1
6
1Q
FY1
7
2Q
FY1
7
3Q
FY1
7
Retail fee % Retail loan (ann., %)
Corp. fee % Corp. loan (ann., %)
AXIS BANK : RESULTS REVIEW 3QFY17
Page | 5
C-I Ratio Improves QoQ
LLP Drives Provisions (+5.7x YoY)
Source : Bank, HDFC sec Inst Research Source : Bank, HDFC sec Inst Research
Despite subdued NII and drop in fees, C-I ratio improves ~190bps QoQ led by treasury gains (Rs15.2bn) The bank guided to add 350-400 branches in FY17 and cost/income ratio to be ~40%
LLP stood at 4.1% ann. vs. 4.2% ann.QoQ, which led to PCR improvement of ~400bps QoQ AXSB provided Rs 2.6bn for a non funded exposure of Rs 3.8bn Contingent provisions O/S at Rs 1.6bn
Source : Bank, HDFC sec Inst Research Source : Bank, HDFC sec Inst Research
Sequentially ROAA Improvement Led By Treasury Gains
Source : Bank, HDFC sec Inst Research
Total slippages at Rs 45.6bn – largely driven by the corp watch list (80% of the total corp slippages) Relapse stood at Rs 8.1bn Net Retail and SME slippage Rs 2.74bn (Rs 1.68bn QoQ) and Rs 3.82bn (Rs 1.63bn QoQ) Fresh SDR: Rs 5.0bn 5/25: NIL O/S SDR at Rs 13.6bn (w/w Rs 5.9bn is a part of the watch list and Rs 2.66bn is part of restructured book) O/S 5:25 at Rs 29.92bn (w/w Rs 9.94bn is part of watch-list) ~57% of the restructured book is part of the watch-list O/S funded watch list declined 20% QoQ to Rs 111bn (3.2%of loans) and non-funded exposure watch-list of Rs 16bn (-15% QoQ)
-
1.0
2.0
3.0
4.0
5.0
6.0
-
50.0
100.0
150.0
200.0
250.0
1Q
FY1
4
2Q
FY1
4
3Q
FY1
4
4Q
FY1
4
1QFY
15
2Q
FY1
5
3Q
FY1
5
4Q
FY1
5
1Q
FY1
6
2Q
FY1
6
3Q
FY1
6
4Q
FY1
6
1Q
FY1
7
2Q
FY1
7
3Q
FY1
7
GNPA (Rs bn) NNPA (Rs bn)
GNPA (%, RHS) NNPA (%, RHS)
2.8 3.3
2.4
2.6
1.9
2.5
1.3
3.2
2.7
3.9
2.9
2.9
4.9
10
.9
5.8
0.0
2.0
4.0
6.0
8.0
10.0
12.0
-
20.0
40.0
60.0
80.0
100.0
120.0
1Q
FY1
4
2Q
FY1
4
3Q
FY1
4
4Q
FY1
4
1Q
FY1
5
2Q
FY1
5
3Q
FY1
5
4Q
FY1
5
1Q
FY1
6
2Q
FY1
6
3Q
FY1
6
4QFY
16
1Q
FY1
7
2Q
FY1
7
3Q
FY1
7
Slippages Restructuring Gross stress addition % loan book (RHS)
Rs bn %
(0.30)
0.20
0.70
1.20
1.70
2.20
(4.0)
(2.0)
-
2.0
4.0
6.0
1Q
FY1
4
2Q
FY1
4
3Q
FY1
4
4Q
FY1
4
1Q
FY1
5
2Q
FY1
5
3Q
FY1
5
4Q
FY1
5
1Q
FY1
6
2Q
FY1
6
3Q
FY1
6
4Q
FY1
6
1Q
FY1
7
2Q
FY1
7
3Q
FY1
7
NII Other income Opex Other provision Tax provision RoAA (RHS)
Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
Date CMP Reco Target
21-Jan-16 388 BUY 531
8-Apr-16 422 BUY 537
27-Apr-16 480 NEU 477
8-Jul-16 542 NEU 530
25-Jul-16 538 NEU 522
26-Oct-16 529 NEU 486
20-Jan-17 484 NEU 501
300
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400
450
500
550
600
650
700
750
Jan-
16
Feb
-16
Mar
-16
Ap
r-16
May
-16
Jun
-16
Jul-
16
Au
g-1
6
Sep
-16
Oct
-16
Nov
-16
Dec
-16
Jan-
17
Axis Bank TP
AXIS BANK : RESULTS REVIEW 3QFY17
Page | 11
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