Axis Bank's Stock Falls as Results Disappoint on Asset Quality

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  • Jul 27, 2021 - Axis Bank's Stock Falls as Results Disappoint on Asset Quality

Axis Bank's Stock Falls as Results Disappoint on Asset Quality

Jul 27, 2021

Axis Bank, country's third largest private sector lender, posted a standalone profit of Rs 21.6 bn for the quarter ended June 2021, up 94.2% year on year (YoY) on a low base.

The standalone profit in the first quarter of the last year stood at Rs 11.1 bn was impacted by the higher provisions due to lockdowns.

Net interest income, the difference between interest earned and interest expended, grew by 11.1% to Rs 77.6 bn in the June quarter of 2022, from Rs 69.9 bn in the same period last fiscal.

The bank's earnings were boosted by the non-lending part of the business. The non-interest income grew 39% YoY to Rs 35.9 bn led by fee income and trading profits.

The company's operating performance in the quarter was sturdy as operating profit grew 10% YoY to Rs 64.2 bn, while core operating profit jumped 13%.

The balance sheet grew 14% YoY and stood at Rs 10.1 tn as on June 2021.

The total deposits grew by 16% on period end basis and by 11% YoY on quarterly average balance (QAB) basis.

Asset quality weakened during the quarter

The lender saw a marked deterioration in its asset quality in the quarter likely due to the second wave of Covid-19 pandemic.

The gross non-performing assets ratio stood at 3.9% in the June quarter against 3.7% in the previous quarter.

Similarly, the net non-performing assets (NPA) ratio rose to 1.2% in the quarter from 1.1% in the previous quarter.

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The lender's gross slippages in the quarter jumped 23% sequentially to Rs 65.2% and was nearly three times from the year-ago quarter.

As on 30 June, the bank's provision coverage, as a proportion of gross NPAs stood at 70% compared to 75% in the year-ago quarter and 72% in the previous quarter.

Provisions and contingencies remained elevated at Rs 35.3 bn in the June quarter, higher by 7.2% compared to Rs 32.9 bn in the March quarter.

However, it has fallen 20% from Rs 44.2 bn in the first quarter of 2021, the period which impacted by lockdown.

The bank did not use Covid provisions during the quarter. It held cumulative provisions (standard + additional other than NPA) of Rs 124.3 bn at the end of the June quarter.

Company's loan book quality improves

Loan growth in the reported quarter was healthy for the bank despite the challenges posed by the pandemic.

The bank said retail loans grew 14% YoY and were largely flat on a sequential basis to Rs 3.3 tn and accounted for 54% of the net advances.

The share of secured loans was around 80%, with home loans comprising 37% of the retail book.

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Axis Bank's valuations wait for a growth boost amid stress

Axis Bank's June quarter performance mirrored that of its peers with a rise in stress from the retail book due to the second wave.

The third-largest private sector lender missed the street's net profit estimates by a small margin owing to the modest performance on core interest income and interest margins.

The second wave of the pandemic has left a mark on the bank's balance sheet, visible in increased bad loans and a hit to income.

On a sequential basis, net interest income grew 2.8% on the back of flat loan growth.

The bank reported an increase in fresh slippages to Rs 65.2 bn, 80% of which were from the retail book.

The management indicated that while stress is primarily from the retail loan portfolio, the bank is comfortable with its lending strategy towards this category.

The bank didn't lend much during the quarter to avoid an increase in stress.

Equitymaster's view on Axis Bank

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 performance...

  • 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 the current financial year.

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How the stock markets reacted to Axis Bank

Shares of Axis Bank opened the day at Rs 752.5 on the BSE and Rs 750.5 on the NSE.

Its share price closed at Rs 732 (down 3.2%) on the BSE and Rs 731.7 (down 3.3%) on the NSE.

At its current price, it is trading at a P/E of 31.2.

The share touched its 52-week high of Rs 800 and 52-week low of Rs 400 on 15 February 2021 and 24 September 2020, respectively.

Over the last 30 days, the Axis Bank share price is up 1%. Over the last one year, the company's share price is up 60.1%.

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

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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