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Axis Bank: Outside Watchlist Slippages a Big Worry - Views on News from Equitymaster
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  • Jul 31, 2017 - Axis Bank: Outside Watchlist Slippages a Big Worry

Axis Bank: Outside Watchlist Slippages a Big Worry
Jul 31, 2017

Axis Bank declared the results for the first quarter of the financial year ended March 2018 (1QFY18). The bank has reported a marginal 2.2% YoY growth in net interest income while net profits declined 16.1% YoY in 1QFY18. Here is our analysis of the results.

Performance summary
  • Net interest income grows marginally by 2.2% YoY during 1QFY18 on the back of 11.8% YoY growth in advances.
  • Net interest margins (NIM) declined by 0.2% as compared to a year ago and stood at 3.6%. Management expects NIM's to further compress by 0.2% in FY18.
  • Net profits declined by 16.1% YoY in 1QFY18 on account of an increase in provisions coupled with an increase in operating expenses. The cost to income ratio which stood at 38.4% in 1QFY17 has now increased to 43.66% in 1QFY18.
  • Both the gross (5.03%) and net NPA (2.3%) levels were higher than 2.5% and 1.1% levels respectively in June 2016.
  • Capital adequacy ratio (CAR) remained stable at 16. 6% at the end of June 2017 as per Basel III norms (Tier 1 capital at 12.6%).

    Financial Snapshot
    Rs (m) 1QFY17 1QFY18 Change
    Interest income 111,139 110,525 -0.6%
    Interest expense 65,970 64,364 -2.4%
    Net Interest Income 45,169 46,161 2.2%
    Net interest margin (%) 3.8% 3.6%  
    Other Income 27,383 29,998 9.6%
    Other Expense 27,858 33,248 19.3%
    Provisions and contingencies 21,172 23,419 10.6%
    Profit before tax 23,522 19,492 -17.1%
    Tax 7,967 6,436 -19.2%
    Profit after tax/ (loss) 15,555 13,056 -16.1%
    Net profit margin (%) 14.0% 11.8%  
    No. of shares (m)*   2,397.0  
    Book value per share (Rs)   238.3  
    P/BV (x)*   2.2  

    *Book value as on 30th June 2017

  • The growth in the advances was led by retail and working capital loans. Retail loan advances grew by 24% in the first quarter of FY18. Whereas, the corporate book grew marginally during the quarter as compared to a year ago.
  • With branch network of over 3,385 the bank has undoubtedly leveraged its franchise well and capitalized on CASA deposits. CASA deposits improved to 49% of overall deposits at the end of June 2017 as compared to 43.4% a year ago. Whereas, term deposits de-grew by 0.8% during the quarter.

    Increasing Share of CASA in Deposit Mix
    (Rs m) 1QFY17 % of total 1QFY18 % of total Change
    Advances 3,449,252   3,854,805   11.8%
    Retail 1,431,590 41.5% 1,773,210 46.0% 23.9%
    Corporate 2,017,662 58.5% 2,081,595 54.0% 3.2%
    Deposits 3,578,580   3,937,408   10.0%
    CASA 1,554,140 43.4% 1,929,330 49.0% 24.1%
    Term deposits 2,024,440 56.6% 2,008,078 51.0% -0.8%
    Credit deposit ratio 96.4%   97.9%    

  • While Axis Bank's overall fee income registered a growth of 16% YoY during 1QFY18, the retail fees (48% of fee income source) grew strongly by 32% YoY in 1QFY18 offering a big boost.
  • Both the gross (5.03%) and net NPA (2.3%) levels were higher than 2.5% and 1.1% levels respectively in June 2017. The provision coverage ratio declined and is presently at 65% at the end of June 2017. The same stood at 69% a year ago. The restructured advances were 1.31% of total loan book.
  • The worrying part is that, off the fresh gross slippages of Rs 35 bn, only 22% are from the watchlist. The balance 78% are outside the watchlist, which indicates signs of trouble going ahead.
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