27 April 2016
4QFY16 Results Update | Sector: Financials
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm/ Vol m
Free float (%)
1,145.1 / 17.2
Mixed performance; Weak outlook; Cut earnings by ~10% for FY17/18
Financials & Valuations (INR b)
2016 2017E 2018E
168.3 189.1 220.7
161.0 184.2 213.3
EPS Gr. (%)
Div. Yield (%)
Axis Bank’s (AXSB) 4QFY16 PAT at INR21.5b was flat QoQ and YoY basis (9%
miss). While reported PPoP of INR44b (+23% YoY, 12% QoQ) was inline, higher
than expected provisions led to PBT miss of 9%. With the benefit of
repatriation gain on foreign operations (INR1.7b) and strong recoveries
(INR830m), AXSB made INR3b of contingency provisions.
Asset quality outlook challenging:
AXSB has given additional disclosure on
corporate lending watch list, identifying INR226b of potential stress (6.7% of
loans, ~14% of corporate loans). Management expects ~60 % of the watch list
accounts to flow into NPA over the next 8 quarters (slightly higher proportion
in 1HFY17). Overall we expect 150bp/125bp credit costs for FY17/18E and with
significant rise in GNPA expected (3% v/s 1.8%).
Guidance for FY17:
a) NIM - 3.6%+, (b) C/I ratio of <40%, (c) High teens PPoP
growth, (d) credit costs 125bp (Base Case) -150bp (adverse case) – factors in
benefit of contingency provision reversal if any, (e) PCR at similar levels (~70%),
(f) loan growth of 18-20%, (g) CASA ratio 40%, (h) 350-400 new branches,
1) CET1 ratio remains healthy at 12.51% (+44bp YoY), 2) NIMs
improve QoQ by ~20bp to ~4%, and 3) Avg. CASA ratio remained stable at 40%.
Valuation and view:
Our earnings estimate at PPoP level are unchanged
however, higher than expected asset quality stress is leading us to downgrade
earnings by ~10% each for FY17/18E. AXSB has INR3.8b of contingency
provisions which will provide some buffer to earnings in FY17. AXSB has utilized
the moderate growth phase to build capacity and is geared to ride the next
growth cycle with strong capitalization (12.5% Tier I), expanding liability
franchise (2,904 branches—17% CAGR over FY12-16). We expect 1.5% RoA and
~15% RoE over FY17/18E v/s 1.6% RoA and ~17% RoE previously. Based on
residual income model our target price is INR525 (1.8x FY18 BV).
(Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
AS Venkata Krishnan
(A.Krishnan@MotilalOswal.com); +91 22 3010 2603 /
Investors are advised to refer through important disclosures made at the last page of the Research Report.
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