Jan 30, 2021

Banking Axis Bank Ltd

Company Update Axis Bank Ltd

Bloomberg Code: AXSB IN

India Research - Stock Broking

HOLD
Preferred Prudence to Profitability Recommendation (Rs.)
Axis Bank (AXSB)’s Q3FY21 performance was on the down side as the bank CMP (as on Jan 29, 2020) 663
preferred prudence to profitability. Profitability was also hit by spike in opex which Target Price 716
was on its way back to normalcy. NII was flat QoQ and was up 14% YoY, led by Previous Target Price 655
slightly higher NIM of 3.59 despite a moderate loan growth. Loan growth was softer Upside (%) 8
with 6% growth driven by retail. While retail book was up 9%, Corporate book growth
Stock Information
was 2.1% given banks’ focus on profitable growth. Stress on asset quality is clearly
Mkt Cap (Rs.mn/US$ mn) 2029583/27820
visible with proforma slippages at Rs. 67.4 Bn (Rs. 16 Bn in Q2FY21) coming on
52-wk High/Low (Rs.) 761 / 285
the higher side driven by Retail which constituted 84%. Write offs at Rs. 42.6 Bn
3M Avg. daily value (Rs. mn) 22.5
were higher led by corporate book. AXSB has stopped disclosing data on 30 DPD
accounts which is worrisome and leads to apprehensions about future stress on Beta (x) 1.5
books. However, provisions at 2.1% of book and CET I of 15.4 is comforting that Sensex/Nifty 46286 / 13635
bank is in position to withstand the asset quality risks. O/S Shares (mn) 3061.7
Face Value (Rs.) 2.0
Asset quality commentary encouraging: During the quarter, proforma
slippages of Rs. 67 Bn were higher driven by retail book. Of this 8.2 Bn were from Shareholding Pattern (%)
BB and Below book and balance from retail book, spread equally between secured Promoters 13.6
and unsecured book. Management believes that slippages in Q4FY21 to be lower FIIs 49.8
than current levels. As per internal stress test banks’ estimates for slippages are DIIs 23.0
down by 45-50% from original estimate. Restructured loans amount to Rs. 27.09 Bn Others 13.6
(0.42% of loan book) and bank is ot granting restructuring requests going forward.
Stock Performance (%)
Coverage on restructured assets is at 26% with 100% on secured book. Write offs
1M 3M 6M 12M
from corporate book were high. Non-specific provisions as a % of GNPs is high at
116%. It is encouraging to hear that collection efficiency is at 96% and collection Absolute 6 35 56 (9)
efficiency levels across segments have reached pre-covid levels. Relative to Sensex 10 15 26 (22)

Outlook and Valuation Source: Karvy Research

AXSB’s performance on asset quality has remained volatile which is affecting its Relative Performance*
core performance. While the bank has built enough provisioning buffers to withstand 130
asset quality risks, higher slippages and seemingly higher 30 DPD accounts are 110
worrisome and needs close monitoring. However, a higher CET I and provisioning 90
buffers are a testament to banks’ focus on prudence. We recommend a “HOLD” 70
on the stock with a target price of Rs. 716 on SoTP basis (Exhibit 7) and valuing the 50
bank at 2x FY22E ABV. 30
Exhibit 1: Valuation Summary
Mar-20

Jul-20

Nov-20
Dec-20
Apr-20

Oct-20
Jan-20

Jun-20

Jan-21
May-20
Feb-20

Aug-20
Sep-20

YE Mar (Rs. Mn) FY19 FY20 FY21E FY22E FY23E

Axis Bank Ltd Sensex
Net Interest Income 217082 252062 276503 314720 369213
Source: Bloomberg; *Index 100
Pre-Provision Profit 190051 234381 234983 276450 334603
PAT 46308 32564 73755 96314 159640
EPS (Rs.) 18.0 11.5 26.1 34.1 56.6
BV (Rs.) 259.3 301.1 327.2 356.2 404.3
P/BV (x) 2.6 2.2 2.0 1.9 1.6
Net NPA (%) 2.3 1.6 1.4 0.2 (0.4)
ROA (%) 0.7 0.4 0.9 1.0 1.5
ROE (%) 7.1 4.3 8.3 10.0 14.9
Tier I ratio 12.5 14.5 13.0 12.5 14.5
Source: Company, Karvy Research Analyst Contact
For private circulation only. For important information about Karvy’s rating system and other disclosures refer Sarath Jutur
to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>,
sarath.jutur@karvy.com
Thomson Publishers & Reuters

1
 Jan 30, 2021
Axis Bank Ltd

Exhibit 2: Q3FY21 Financials

(Rs. Mn) Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 QoQ (%) YoY (%)

Net Interest Income 64530 68077 69853 73261 73728 0.6 14.3

Non Interest Income 37866 39855 25867 38072 37760 (0.8) (0.3)

- Treasury Income 5150 2640 6220 7690 3670 (52.3) (28.7)

Operating Income 102396 107932 95720 111333 111488 0.1 8.9

Operating Expenses 44969 49421 37276 42356 50533 19.3 12.4

Pre provision Profits 57427 58511 58444 68976 60955 (11.6) 6.1

Provisions and Contingencies 34709 77300 44164 45807 46043 0.5 32.7

PBT 22718 (18789) 14280 23170 14912 (35.6) (34.4)

Provision for Tax 5148 (4911) 3158 6343 3746 (40.9) (27.2)

PAT 17570 (13878) 11122 16827 11166 (33.6) (36.4)

Source: Company, Karvy Research

Without interest reversals
NIM would have been at
3.89%.
Core performance on the downside: NII came in at Rs. 73.7 Bn led by slightly
better NIM despite softer loan growth of 6%. Despite adverse impact of higher interest
reversals, better spreads saved the day. Without interest reversals, NIM would have
been come in at 3.89. Core Fee income made a smart recovery sequentially led by
higher retail book growth. Pre-provision profit (PPP) was disappointing as it was up
6.1% YoY and -11.6% QoQ due to higher expenses. Higher provisions due to higher
write offs affected PAT which came in below street estimates and was a negative.
Provisions were higher due to higher provisions towards NPAs at Rs. 49.5 Bn
(Rs. 8.8 Bn in Q2FY21) and provisions towards depreciation on Investments at
Rs. 4 Bn (Rs. 0.3 Bn in Q2FY21) Advances were up 6% YoY mainly driven by retail book
– up 9%, corporate book grew by 2%. Traction in deposits was impressive at 10.6%, led
by CASA which grew by 16%. However, due to 7% growth in Term Deposits CASA ratio
slightly came down to 43% vs 44% during Q2.

Loan book growth driven by secured retail book: Loan growth of 6% was
driven by Retail book which was up 9%. Corporate book was up 2% YoY. Within retail,
strong traction was seen in HL, LAP and auto loans which were up 23%/11%/10%
respectively. It is comforting to know that 81% of retail and 91% of SME book is
secured. Mortgages comprise 83% of incremental lending book with loan to value ratio
of 58%. It is impressive that collection efficiency at 98% has improved from 94% as
of Q2FY23 and 97% pre-covid. However, bounce rates higher than pre-covid levels
warrants caution. Management has adopted a cautious approach to corporate lending
with 94% incremental loan book driven by A- and above rated corporates. 83% of the
corporate book is rated A- and above.

Exhibit 3: Loan book growth is driven by Retail book.

(Rs. Bn) Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 QoQ (%) YoY (%)

Advances 5501 5714 5613 5764 5828 1.1 5.9

SME+ Retail 3533 3673 3558 3663 3819 4.3 8.1

Large And Mid Corporate 1968 2041 2056 2101 2009 (4.4) 2.1

SME 617 619 571 606 640 5.7 3.7

Retail 2916 3054 2986 3057 3179 4.0 9.0

Core Retail Book 5501 5714 5613 5764 5828 1.1 5.9
Source: Company, Karvy Research

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 Jan 30, 2021
Axis Bank Ltd

SME book – well diversified and top rated: AXSB’s SME book constitutes 11% of
total loan book and has grown 4% YoY. SME portfolio is spread across 35 sectors and
120 locations. Average ticket size is Rs. 35 Mn. 80% of outstanding portfolio and 84%
of incremental portfolio is rated A- and above. Sanctions under ECLGS scheme stands
at Rs. 106 Bn with Rs. 88.8 Bn disbursed. Sanctions under ECLGS 1.0 and ECLGS 2.0
stand at RS. 82.9 Bn and Rs. 5.86 Bn respectively. Sanctions under ECLGS scheme
are covered under banks’ due diligence mechanism and adhere to bank’s stringent
underwriting framework.

Strong traction seen in retail deposits: AXSB’s deposits were up 11% during
Q3FY21 driven by strong traction in retail deposits. CASA + Retail TD were up 16%
YoY. While CASA deposits were up 16%, Retail TD were up 17% and constitute 44%
of deposit mix. Despite strong growth in CASA, CASA came down to 43% vs. 44%
in Q2 due to strong growth in Retail TD. Non-retail TD, however, contracted 23% and
constitutes 14% deposit mix.

Exhibit 4: Increasing Granularity in Deposits

(Rs. Bn) Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 QoQ (%) YoY (%)

Deposits 5917 6401 6282 6355 6541 2.9 10.6

Term 3479 3764 3714 3547 3717 4.8 6.8

Saving 1654 1736 1763 1807 1898 5.1 14.8

Current 784 901 804 1001 926 (7.5) 18.1

CASA 2437 2637 2568 2808 2824 0.6 15.9

CASA (%) 41.2 41.2 40.9 44.2 43.2 (102) bps 197 bps

Avg Daily Balance (%) 39.0 39.0 39.0 40.0 42.0 200 bps 300 bps
Source: Company, Karvy Research

Strain seen on asset quality during the quarter: During the quarter proforma
slippages were at Rs. 67.4 Bn with proforma GNPAs and NNPAs coming in at 4.6/1.2
(+27bps/+16 bps). BB and Below book (fund-based, non-fund based and investments)
is restricted to 2.4%. Provisioning buffer (standard and additional) stands at 2.1% of
loan book. In relation to AXSB’s track record and high estimates by the bank, pandemic
related impact on asset quality is going to be lower, and expect credit costs to normalize
sooner than earlier estimated which is encouraging.

Exhibit 5: Strain on asset quality contained

(Rs. Bn) Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 QoQ (%) YoY (%)

Asset quality

Gross NPA (Rs. Bn) 301 302 296 268 220 (18.0) (26.8)

Net NPA (Rs. Bn) 122 94 74 61 46 (24.5) (62.1)

Gross NPAs (%) 5.0 4.9 4.7 4.2 3.4 (74) bps (156) bps

Net NPAs (%) 2.1 1.6 1.2 1.0 0.7 (24) bps (135) bps

Delinquency Ratio (%) 4.7 2.9 1.6 0.6 0.0 (63) bps (473) bps

Coverage Ratio (%) 59.6 69.0 74.8 77.2 79.0 181 bps 1948 bps
Source: Company, Karvy Research

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 Jan 30, 2021
Axis Bank Ltd

Exhibit 6: Key Ratios

Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 QoQ (%) YoY (%)

Profitability

NIM (%) 3.6 3.6 3.4 3.6 3.6 1 bps 2 bps

Cost-Income Ratio (%) 43.9 45.8 38.9 38.0 45.3 728 bps 141 bps

Tax Rate (%) 22.7 26.1 22.1 27.4 25.1 (225) bps 246 bps

Balance Sheet items/ratios

Deposits (Rs. Bn) 5917 6401 6282 6355 6541 2.9 10.6

CASA Deposits (Rs. Bn) 2437 2637 2568 2808 2824 0.6 15.9

Advances (Rs. Bn) 5501 5714 5613 5764 5828 1.1 5.9

Tier I (%) 15.0 13.3 13.5 16.1 16.5 42 bps 146 bps
Source: Company, Karvy Research

Exhibit 7: Axis Bank SOTP

Subsidiary Holding (%) Basis Per share % of TP

Axis Bank 100 2x FY22E Adjusted BV 700.6

Axis Finance 100 1.5X FY21E BV 9.0

Axis AMC 75 7% of AUM 12423 3.0

Axis Securities 100 18x FY21E PE 13658.00 4.5

Holding Cost (%) 10 (1.7)

Final Valuation 715.5

Source: Karvy Research

Exhibit 8: NII Growth - Impacted by modest loan growth and Exhibit 9: NIM stable despite reversals due to lower funding costs
reversals
75.0 19.3 22.0 3.65
20.1 3.58 3.59
19.5 3.57
3.60
20.0 3.55
70.0
3.55
14.3 18.0
15.2 3.50
65.0
16.0
3.45
3.40
60.0
14.0 3.40
65

68

70

73

74

55.0 12.0 3.35

Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21
Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21
NII (Rs. Bn) NII Growth (%)

Source: Company, Karvy Research Source: Company, Karvy Research

Exhibit 10: Other Income Growth driven by strong recovery in Exhibit 11: Other Income as a % of PPP
Fee Income
13.1 12.1 7.5 75.0
100 19.8 13.3 68.1
70.0 65.9
80 13.6 20.2 9.7
6.6 24.0 65.0 61.9

60 60.0 55.2
55.0
40 77.0
73.3 73.5 72.3
63.9 50.0
44.3
20
45.0

0 40.0
Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21
Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21
Commission & Fee income Profit on sale of Invs Others
Source: Company, Karvy Research Source: Company, Karvy Research

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 Jan 30, 2021
Axis Bank Ltd

Exhibit 12: PPP growth impacted by spike in Opex Exhibit 13: Cost-to-Income (%) - getting back to normal run rate
16.7 15.9 48.0
70.0 18.0
45.8
45.3
46.0
65.0 13.0 43.9
6.1
44.0
3.9
60.0 -0.8 8.0
42.0

40.0 38.9
55.0 3.0
38.0
57

59

58

69

61
38.0
50.0 -2.0
Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 36.0
Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21
Pre-provision Profit (Rs. Bn) Pre-provision Profit Growth (%)

Source: Company, Karvy Research Source: Company, Karvy Research

Exhibit 14: RoA and RoE yet to pick up (%) Exhibit 15: Increasing share of CASA + Retail TD (%)
1.00 5.3 6.0 89.0

0.70 0.86 5.0 86.3 86.1

87.0
0.73 0.73
0.40 4.0
0.48 85.0
3.4 83.4
1.9 2.6
0.10 3.0
83.0 81.6
80.8
Q3FY20

Q4FY20

Q1FY21

Q2FY21

Q3FY21

-0.20 2.0
81.0
-0.50 1.0
1.6 79.0
-0.62
-0.80 0.0 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q#FY21
RoA (Annualised) RoE
Source: Company, Karvy Research Source: Company, Karvy Research

Exhibit 16: Deposit growth (%) Exhibit 17: Healthy CASA Mix (%)
6600 16.7 18.0 45.0
16.2

6400 15.1 16.0

44.2
43.0
10.6

43.2
6200 14.0
8.8 41.0
6000 12.0
41.2
41.2

40.9

5800 10.0 39.0

6401

6282

6355

6541
5917

5600 8.0
Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 37.0
Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21
Deposits (Rs. Bn) Deposits Growth (%) (RHS)

Source: Company, Karvy Research Source: Company, Karvy Research

Exhibit 18: Advances growth (%) - Impacted by lower corporate Exhibit 19: PCR - Buffering up amid rising asset quality risks
book growth
15.8 15.5 77
5900 10.5 17.0 78 75 75
12.9
5800
74
5700 5.9 12.0 69
70
5600

5500 7.0 66

5400 60
5714

5613

5764

5828

62
5501

5300 2.0
58
Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21
Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21
Advances (Rs. Bn) Advances Growth (%) (RHS)

Source: Company, Karvy Research Source: Company, Karvy Research

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 Jan 30, 2021
Axis Bank Ltd

Financials

Exhibit 20: Profit & Loss

YE Mar (Rs. Mn) FY19 FY20 FY21E FY22E FY23E
Interest Income 549858 626352 698861 795332 933899
Interest expense 332776 374290 422358 480613 564686
Net interest income 217082 252062 276503 314720 369213
Fees 123722 133643 127410 137117 157569
Investment Profit 7581 21723 22613 36664 42608
Net Revenue 348385 407428 426527 488500 569390
Operating Expense 158334 173046 191544 212051 234787
-Employee Exp 47473 53210 59595 66747 74756
-Other Exp 110861 119836 131949 145304 160031
Pre-provision Profit 190051 234381 234983 276450 334603
Provisions 120310 185339 123906 131399 94180
PBT 69741 49042 111077 145051 240422
Taxes 23433 16478 37322 48737 80782
PAT 46308 32564 73755 96314 159640
Source: Company, Karvy Research

Exhibit 21: Balance Sheet

YE Mar (Rs. Mn) FY19 FY20 FY21E FY22E FY23E
Equity Capital 5143 5643 5643 5643 5643
Reserves & Surplus 661620 843835 917590 999457 1135151
Shareholder's Funds 666763 849478 923233 1005100 1140794
Deposits 5484713 6401049 7029221 8135989 9466028
-Current deposits 892653 901144 982247 1080472 1188519
-Saving deposits 1541288 1735916 1944226 2255302 2661257
-Term deposit 3050772 3763989 4102748 4800215 5616251
Borrowings 1527758 1479541 1760654 2095178 2493262
Other liabilities 330731 421579 425997 477116 543913
Total liabilities 8009965 9151648 10139105 11713384 13643997
Cash/Equivalent 672046 972683 634872 738974 863792
Advances 4947980 5714242 6085667 6815947 7770180
Investments 1749693 1567343 2261330 2618862 3043394
Fixed Assets 40366 43129 47442 52186 57405
Other assets 599880 854252 1109794 1487415 1909226
Total assets 8009965 9151648 10139105 11713384 13643997
Source: Company, Karvy Research

6
 Jan 30, 2021
Axis Bank Ltd

Exhibit 22: Key Ratios

YE Mar (%) FY19 FY20 FY21E FY22E FY23E
Growth (%)
NII growth 52.6 16.1 9.7 13.8 17.3
Pre-provision profit growth 42.0 23.3 0.3 17.6 21.0
PAT growth (37.1) (29.7) 126.5 30.6 65.8
Business (%)
Advance growth 76.0 15.5 6.5 12.0 14.0
BS growth 73.4 14.3 10.8 15.5 16.5
Credit/Outsider's Liabilities 70.6 72.5 69.2 66.6 65.0
CASA 44.4 41.2 41.6 41.0 40.7
Operating Efficiency (%)
Cost-to-income 45.4 42.5 44.9 43.4 41.2
Cost-to-income (Ex Treasury) 46.5 44.9 47.4 46.9 44.6
Cost-to-advances 3.2 3.0 3.1 3.1 3.0
Spreads (%)
Spreads 2.9 3.0 3.0 3.3 3.5
NIMs 3.2 3.2 3.2 3.3 3.4
Capital Adequacy (%)
Tier I 12.5 14.5 12.5 12.5 12.5
Asset Quality (%)
Gross NPA 5.8 5.1 5.5 4.5 3.5
Net NPA 2.3 1.6 1.4 0.2 (0.4)
Provision coverage 62.1 69.0 75.8 94.8 111.0
Slippage 3.2 4.0 3.5 3.0 2.2
Credit-cost 2.0 2.2 2.0 1.8 1.1
Return (%)
ROE 7.1 4.3 8.3 10.0 14.9
ROA 0.7 0.4 0.9 1.0 1.5
Per share (Rs.)
EPS 18 12 26 34 57
BV 259 301 327 356 404
ABV 215 268 297 350 415
Valuation (x)
P/E 36.8 57.6 25.4 19.4 11.7
P/BV 2.6 2.2 2.0 1.9 1.6
P/ABV 3.1 2.5 2.2 1.9 1.6
Source: Company, Karvy Research

7
 Jan 30, 2021
Axis Bank Ltd

Exhibit 23: RoAA - Decomposition (%)

YE Mar FY19 FY20 FY21E FY22E FY23E
Other Income 1.9 2.0 1.7 1.8 1.8
- Invesment Gains 0.1 0.3 0.3 0.4 0.4
- Fee income 1.3 1.2 1.0 1.0 1.0
Total Income Earned 5.1 5.2 4.9 5.1 5.2
Employee expense 0.7 0.7 0.7 0.7 0.7
Operating Expenses &
1.6 1.5 1.5 1.5 1.5
Administrative Expenses
Total op exp 2.3 2.2 2.2 2.2 2.1
Pre Provisioning Profit 2.8 3.0 2.7 2.9 3.1
Provisions & Contingencies 1.8 2.4 1.4 1.4 0.9
PBT 1.0 0.6 1.3 1.5 2.2
Provision for Tax 0.0 0.0 0.4 0.5 0.7
PAT 0.0 0.0 0.9 1.0 1.5
Leverage 7.4 6.7 6.6 6.8 6.8
ROE 0.0 0.0 8.3 10.0 14.9
Capital / Total Assets 8.3 9.3 9.1 8.6 8.4
Tier I ratio 12.5 14.5 12.5 12.5 12.5
Source: Company, Karvy Research

8
 Jan 30, 2021
Axis Bank Ltd

Stock Ratings Absolute Returns

Buy : > 15%
Hold : 5-15%
Sell : < 5%

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