Why should you buy?
According to Motilal Oswal, “AXSB had a mixed quarter, with net profit up 54% year-on-year (online), supported by lower provisions, although margin declined and OPEX remained Loan growth remained healthy, driven by continued momentum in the SME and retail segments OPEX growth was 23% YoY and 4% QoQ, resulting in modest growth of 9% y/y of base PPOP recoveries and upgrades to IN37.6b and write-offs of INR16.9b enabled a 35bp/18bp QoQ decline in the GNPA/NNPA ratio. Axis Bank delivers an FY24 RoA/RoE of 1.6%/15.7%.”
Robust asset quality: margin down 4bps QoQ
PAT rose 54% yoy and 14% qoq to INR 41.2b (online) in 4QFY22, supported by lower provisions. PPOP was up 13% YoY (missed 7%) and base PPOP was up 9% (similar to 3QFY22 levels). NII/PPOP/PAT increased by 13%/7%/98% in FY22 to reach INR331.3b/INR247.4b/INR130.2b. NIM decreased 4bp QoQ to 3.49%, resulting in NII growth of 17% YoY and 2% QoQ (5% failure). Other income was up 19% year-on-year (online), supported by cash gains of INR 2.3 billion from INR 220 million in 4QFY22. Commission revenue increased 11% year-on-year, within which retail commissions increased 14% year-on-year. OPEX increased 23% YoY due to increased business volumes (38%), investments in future growth and technology (24%), collections/COVID/legal (11%) and general increase (27%). As a result, the C/I ratio remained high at 50.4%. The cost/asset ratio will increase in the short term and the bank is therefore moving away from its exit target of 2%.
Buy for a target price of INR 930
Motilal Oswal said: “AXSB delivered a mixed performance with a strong increase in net profit, supported by lower provisions, even as margin declined and OPEX remained high. Asset quality continues to improve, helped by lower slippages and higher recoveries and upgrades. Restructured We expect slippages to remain under control, allowing for a sustainable improvement in credit costs, although an improvement in margin and cost ratios would be key to monitor. We expect AXSB to deliver a FY24 RoA /RoE of 1.6% / 15.7% We maintain our buy rating with a TP of INR 930/share (1.7x FY24E ABV + INR111 of its subsidiaries).