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Axis Bank has come out with a mixed set of numbers for 4QFY2016. The NII
grew 19.8% yoy to Rs4,553cr, in line with our expectations. However, higher than
expected provision led to a 1.2% decline in PAT to Rs2,154cr.
Advances growth remains healthy; During 4QFY2016, the bank reported an
advance growth of 21.0% yoy, while deposits grew by 11% yoy. The retail book
grew by 24% yoy and accounted for 41% of the advances as on March 31,
2016.For FY2017, the bank expects credit growth to be of around 18-20%.
CASA ratio came in at 47.3%, increasing by 409bp qoq and 255bp on a yoy
basis. NIM jumped by 18bp qoq and stood at 3.97% while the cost of funds fell
by 2bp qoq to 5.84%. The bank expects its NIM to remain above 3.6% for
FY2017. The bank created contingency provision to the extent of Rs300cr during
the quarter, thereby taking the outstanding contingency provision to Rs480cr.
Corporate lending watch list a concern, asset quality likely to be under pressure;
Asset quality for the quarter remained stable with GNPA & NNPA ratios to 1.67%
and 0.7% vs 1.68% & 0.75% qoq. Slippages came in at Rs1,474cr, whereas the
bank transferred 1 account worth Rs170cr under 5/25 scheme and conducted
strategic debt restructuring in 4 accounts worth Rs205cr. The bank had already
recognized AQR accounts in 3QFY16.In a significant development the bank has
come out with a disclosure where in it has mentioned Rs22,600 cr worth of loans
from the corporate loan book are under stress and ~60% of the same can fall
into NPAs over the next eight quarters. This will keep the provisions on a higher
side over the next 2 years.
Outlook and valuation: Though the incremental slippages can remain high over
the next two years, the disclosure by the bank gives better clarity on earnings
going ahead. On a positive side, the core business of the bank continues to grow
strong. With higher credit cost we don’t expect FY17 to be a good year with
sluggish earnings growth, but remain upbeat on FY18. The stock currently trades
at 1.7x P/ABV FY2017E. We maintain our Accumulate rating on the stock with a
price target of Rs494.

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