What's Behind Axis Bank's Highest Quarterly Profit in March Quarter?

Axis Bank on Tuesday reported its highest-ever quarterly standalone net profit of Rs 26.8 bn in the March quarter on the back of lower provisioning.

It had reported a loss of Rs 13.9 bn in the year ago quarter.

The bank's net profit was higher than most of analysts' estimates. A Bloomberg poll of 13 analysts had estimated a profit of Rs 19.1 bn.

Profitability was driven by double-digit growth in net interest income, non-interest income and pre-provision operating profit.

Net interest income (NII) for the quarter under review jumped 11% year-on-year (YoY) to Rs 75.6 bn.

The net interest margin (NIM) for Q4 was at 3.56% as against 3.55% a year earlier.

Other income rose 17% during the quarter. The growth was led by almost tripling of trading income at Rs 7.9 bn. Fee income also showed an impressive jump at 15% to Rs 33.8 bn.

Here's a table comparing Axis Bank's quarterly performance on key parameters.

Axis Bank Financial Performance

(Rs m)	Q4FY21	Q4FY20	Q3FY21	YoY (%)	QoQ (%)
Interest Income	155,452	154,984	162,341	-4.2%	0.3%
Interest Expenses	79,902	81,256	94,264	-15.2%	-1.7%
Net Interest Income	75,550	73,728	68,077	11.0%	2.5%
Net Profit	26,771	11,166	-13,878	292.9%	139.8%
% of Gross NPAs	3.70	3.44	4.86
% of Net NPAs	1.05	0.74	1.56

Data Source: Company Presentation

Provisions Fall Sharply; Asset Quality Improves

Axis Bank's asset quality improved sharply despite the pandemic.

As on 31 March 2021, the bank's reported gross non-performing assets (NPAs) and net NPA levels were 3.70% and 1.05%, respectively.

Provisions fell 57.4% during the March quarter to Rs 32.9 bn.

Axis Bank said specific loan loss provisions for Q4FY21 were Rs 70.4 bn. This included reclassification of NPA provision of Rs 42.7 bn due to a supreme court judgment shown as 'other provision' in the prior quarter.

The bank also made an additional provision aggregating Rs 8 bn on account change in NPA provision rates on loans to the commercial banking segment.

Collections to Slow amid Rising Covid-19 Cases

While Axis Bank's asset quality numbers improved, it cautioned against a possible drop in collection efficiency over the next few weeks.

Axis Bank's chief executive officer Amitabh Chaudhry said it expects collections to slow in the coming weeks as Covid-19 cases continue to rise across India, affecting the movement of executives on the ground.

• "These are early days, but we do see an immediate business impact across segments. We have not seen any slowdown in early bucket collections, but it is likely to get impacted in the coming weeks because people are not able to meet customers,".

He added that despite challenges, such situations do provide opportunities and the bank would like to grow in its focus segments.

He said corporates are adopting a wait-and-watch strategy and given the sudden surge, the focus is on employee health.

Axis Bank's advances including targeted long-term repo operations (TLTRO) investments grew 12% YoY to Rs 6.41 lakh crore. Its deposits rose 10.5% YoY to Rs 7.07 lakh crore.

Retail Disbursements at New All-Time Highs

Axis bank's loan book grew 12% on a YoY basis and 8% on a sequential basis. Domestic retail loans grew 11% YoY and 7% on a sequential basis.

Disbursements in consumer segment were up 45% YoY and 44% QoQ.

Rural disbursements were up 47% on an annual basis while corporate loans grew 16% YoY and 9% QoQ.

Loan Recast Requests Worth 30 Bn Received under Covid-19 Framework

Axis Bank received Rs 30 bn worth loan recast requests under the Covid-19 resolution framework, the top management said in a conference call after the announcement results.

Of the Rs 30 bn worth requests received, loan restructuring has been invoked for Rs 18.5 bn worth of loans, of which Rs 6.2 bn is implemented.

Including the loans under the MSME loan restructuring scheme, the bank restructured loans worth Rs 8.5 bn as on 31 March 2021.

Last year, the Reserve Bank of India (RBI) had allowed banks to restructure loans to help borrowers who suffered due to the pandemic. There is also a separate loan restructuring scheme for MSME loans.

How did Axis Bank's Subsidiaries Perform?

Axis Securities' broking revenues for FY21 grew 122% YoY to Rs 4.3 bn and net profit for FY21 at Rs 1.7 bn grew to 10x of its FY20 profit after tax.

Similarly, Axis Capital's net profit stood at Rs 1.7 bn, up 66% YoY.

The bank's asset management company (AMC) business also doubled its net profit for the fiscal 2021 to Rs 2.4 bn from Rs 1.2 bn in FY20.

However, Axis Finance reported a marginal rise of 9% in its net profit at Rs 2.1 bn.

Equitymaster's View on Axis Bank's Q4FY21 Performance...

We reached out to Tanushree Banerjee, Co-Head of Research and banking sector analyst at Equitymaster, for her view on the private bank's performance.

Here's what she has to say about Axis Bank's Q4FY21 results:

• Unlike its peer ICICI Bank, the extra provisions keep Axis Bank in a sweet spot.
  
  If the pandemic results in increased stress on loan book quality, the lender has the necessary insurance against it.
  
  Moreover, if such risks do not materialise, Axis Bank can write back these provisions and post bigger profits by the end of FY22.

How Stock Markets Reacted to Axis Bank's Q4 Numbers...

Axis Bank share price edged 2% higher in intraday trade today after it reported turnaround results in the quarter.

However, gains were eroded thereafter as its shares slipped over 1.5%. Presently, Axis Bank share price is trading up by 0.5% at Rs 703.

All private bank stocks are trading in green with shares of City Union Bank and Lakshmi Vilas Bank witnessing most of the buying interest.

Axis Bank share price touched a 52-week high of Rs 800 and a 52-week low of Rs 333.

Have a look at the chart below which compares the share price performance of Axis Bank with the benchmark BSE Sensex over the last one year.

While Rs 100 invested in BSE Sensex a year back has turned out to be Rs 154, the same has turned out to be Rs 164 in Axis Bank.

At the current price of Rs 703, the P/E ratio for Axis Bank stands at 66.5 times.

About Axis Bank

Axis Bank is the third largest private sector bank in India. The bank offers the entire spectrum of financial services to customer segments covering large and mid-corporates, MSME, agriculture, and retail businesses.

The bank has a large footprint of 4,528 domestic branches with 12,044 ATMs & 5,433 cash recyclers spread across the country as on 31 March 2020.

Axis Bank is one of the first new generation private sector banks to have begun operations in 1994. The bank was promoted in 1993, jointly by Specified Undertaking of Unit Trust of India (SUUTI) (then known as Unit Trust of India), Life Insurance Corporation of India (LIC), General Insurance Corporation of India (GIC), National Insurance Company, the New India Assurance Company, the Oriental Insurance Company, and United India Insurance Company.

For more details about the company, you can have a look at Axis Bank's fact sheet and Axis Bank's quarterly results on our website.

For a sector overview, you can read our banking sector report.

You can also compare Axis Bank with its peers on our website:

Axis Bank vs HDFC Bank

Axis Bank vs ICICI Bank

Axis Bank vs Kotak Mahindra Bank

Axis Bank vs Yes Bank

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