EUR 120.00 For Business Accounts Only

MOSL: AXIS BANK (Buy)-Mixed quarter-watch-list reaches normalized levels

(AXSB IN, Mkt Cap USD28.2b, CMP INR713, TP INR835, 17% Upside, Buy)

Asset quality to recover gradually; credit cost to stay elevated over near term
** AXSB reported an in-line operating performance, but slippages stood elevated with BB and below pool driving 81% of total corporate slippages. Outstanding BB and below pool declined 18% QoQ to INR51.3b.

** We cut our EPS estimate for FY21/22 by 4%/5% to factor in higher opex/provisioning expenses and slight moderation in NII. Maintain Buy.

Business growth steady; PCR declines on elevated slippages
** AXSB reported PAT of INR17.6b (+4.5% YoY, in-line). NII increased 15% YoY to INR64.5b (in-line), led by healthy domestic loan growth and margin expansion of 6bp QoQ to 3.6%.

** Other income declined 5.4% YoY to INR37.9b owing to muted fee growth of 6% YoY. PPoP increased 4% YoY to INR57.4b (in-line).

** Loan growth stood at ~16% YoY to INR5.5t. Domestic loans increased at 18% YoY, led by 25% YoY growth in retail loans, while the overseas book declined 7% YoY. Deposits were up 15% YoY, led by 25% YoY growth in TD deposits. Quarterly average CASA improved to 40% from 39% in 2QFY20.

** Fresh slippages rose to INR62.4b, of which corporate slippages stood at INR38.9b (81% from BB and below pool, which includes slippage of INR10.9b from stressed HFC). Higher recoveries/upgrades & write-offs enabled only 3.4% rise in GNPA, while NNPA was up ~9% QoQ, mainly due to lower provisions. Thus, PCR fell ~210bp QoQ to 59.6% (78% incl. TWO).

** Funded BB & below pool reduced to INR51.2b from INR63b in 2QFY20, while non-funded exposure to BB & below pool increased to INR36.7b (v/s INR22.1b in 2QFY20) on account of one downgrade in the telecom sector.