MOSL: AXIS BANK (Neutral)-Weak operating performance-asset quality woes deepen

​Axis Bank: Weak operating performance; asset quality woes deepen

(AXSB IN, Mkt Cap USD18.9b, CMP INR513, TP INR470, 8% Downside, Neutral)

• AXSB reported weak numbers, with net profit plummeting to INR4.32b (-67% QoQ), dragged by higher provisions and weak revenue growth.
  
• NII came in flat on a YoY basis (~4% miss), impacted by moderation in yields (33bp) and interest reversals on slipped accounts (~6bp). NIM thus shrunk to 3.45% from 3.63% in 1QFY18. Other income also remained tepid, resulting in 1% YoY growth in total revenues.
  
• Fresh slippages spiked to INR89.36b (9% annualized), driven by NPL divergence of INR48.67b (nine accounts - 1 steel, 3 power, 1 IT/ITES and 4 miscellaneous; total systemic exposure INR400b), according to the RBI, which AXSB downgraded this quarter. Corporate slippages stood at INR81.1b, accounting for ~90% of total slippages. However, corporate slippages within the core business also stood elevated at ~INR22b, while retail and SME slippages were fairly controlled. Exposure to IBC cases stood at INR70.41b, on which AXSB provided another INR5.05b, taking total provisions to INR38.86b (55% coverage).
  
• The funded watch-list declined to INR60.52b - 64% in power (INR79.41b in 1QFY18), while other stressed assets fell to INR40.35b. AXSB increased its credit cost guidance to 220-260bp (from 175-225bp earlier).
  
• Other highlights: a) Total system exposure of divergence-related accounts is INR400b. b) Average CASA ratio stood at 46%