MOSL: AXIS BANK (Neutral)-Core PPoP helped by healthy fees-Pool of stress loans remains unchanged

​Axis Bank: Core PPoP helped by healthy fees; Pool of stress loans remains unchanged

(APNT IN, Mkt Cap USD20.3b, CMP INR545, TP INR545, 0% Upside, Neutral)

• Axis Bank's (AXSB) PAT came in at INR13.06b (5% beat). Key positives were: a) continued healthy retail loan growth of 22% YoY; reported loan growth was lower at ~12% due to FCNR-B linked loans redemption in 2HFY17, b) average daily CASA growth stood at 24% YoY, with SA growth at 22% YoY; average CASA ratio stood at 45%, and c) fee income growth improved to 17% v/s average of ~8% over the last two years, driven by strong retail fees (+33% YoY; 48% of fees v/s 42% a year ago).
• Total pool of gross stress loans was largely unchanged at ~INR400b (9.6% of customer assets), despite high write-offs of INR24.6b (65bp of loans) during the quarter. Gross slippages were elevated due to a) slippages outside watch-list of INR15b+ and higher stress in Agri segment. Net stress loans stood at INR274b (6.6% of customer assets) v/s INR283b (7% of customer assets) a quarter ago.
• Absolute GNPA increased 4% QoQ. GNPA/NNPA came in at 5.03%/2.3% (-1bp/+19bp QoQ). Management commented that stressed assets outside watch-list may continue to add to slippages.
• CET1 ratio/Tier 1 ratio/CAR stood at 11.15%/12.6%/16.6%. During the quarter, the bank raised INR35b/INR50b of AT1/T2 bonds. Based on expected capital consumption, we believe AXSB should raise CET1 capital by end of 1HCY18.