Axis Bank Q1 Results Analysis

• Strong operating performance and growth: For the June 2020 quarter which was nearly washed out by the nationwide lockdown, Axis bank has delivered a decent set of numbers. The Bank’s Net Interest Income (NII) grew 20% YOY to Rs 6,985 crore during Q1FY21 from Rs 5,844 crores in Q1FY20. Total deposits grew 19% YOY, and Loan book (including TLTRO investments) grew by 17% YOY. The net interest margin for Q1FY21 was 3.40% while CASA ratio stood at 41%. Profit for the quarter ended June 2020  declined to Rs 1,112.17 crore compared to Rs 1,370.08 crore in the corresponding period last year as provisions spiked.

• Bank turns cautious: “Axis Bank said that it has shifted to more conservative policies, and has exercised caution while giving loans, and they believe that the crisis is yet to play out.” {{tweet1}} Specific Loan Loss Provisions for Q1FY21 were Rs 3,512 crores, compared to Rs 2,886 crores in Q1 last year. The Bank held additional provisions of around Rs 5,983 crores towards various contingencies at the end of Q4FY20. The Bank has made incremental provisions aggregating Rs 733 crores in Q1 FY21 towards COVID-19. 
• Asset quality improves: GNPA and NNPA declined to 4.72% and 1.23%, from 4.86% and 1.56%, respectively on a QOQ basis. GNPA and NNPA for the corresponding period in the last year stood at 5.25% and 2.04% respectively. The Bank has recognized slippages of Rs 2,218 crores during Q1FY21, compared to Rs 3,920 crores in Q4FY20 and Rs 4,798 crores in Q1FY20.
• Loan under Moratorium down: In line with the industry trend, the moratorium book for Axis Bank dipped to 9.7% of total loans as of June from 25-28% in the month of April. 90% percent of customers under moratorium 2 were from moratorium 1. The banks are allowed to book interest on the loans due under moratorium. However, there has been no real cash flow, giving rise to potential Asset Liability Mismatch.

Going forward: At first glance, the current set of NPA numbers indicate that asset quality has improved, however, it must be noted that the picture around the asset quality of banks will be clearer only when the 6-month long moratorium imposed by RBI ends i.e after the end of August. Though the loans under moratorium have fallen to 9%, 90% of the customers under moratorium 2 were from moratorium 1 and hence, there is a high risk of rise in NPAs. Therefore, concerns around asset quality still persist, however, the third-largest private sector bank of India has a strong capital and liquidity position and with additional fundraising, it is in a more favorable position than PSU banks and small private banks. As of June 2020 Tier, 1 CAR stands at 14.62% whereas Total CAR 17.47%. Liquidity Coverage ratio stands at 120% Moreover, the impact of forced lending in the times of COVID will be seen more on PSU banks, large private banks like HDFC Bank, ICICI, and Axis are expected to hold their ground.

Our proprietary VGQM model has a BUY rating on the stock.