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Axis Bank: Growth Without Quality Comfort - Views on News from Equitymaster
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Axis Bank: Growth Without Quality Comfort
Oct 31, 2017

Axis Bank declared the results for the second quarter of the financial year ended March 2018 (2QFY18). The bank reported a 35.5% YoY growth in profits during the quarter. While, the asset quality deteriorated further and the gross non-performing assets (GNPA) stood at 5.9% as compared to 5.03% in the preceding quarter.

Performance summary
  • Overall advances grew by 16% YoY during the quarter. The key driver for the growth in advances came in from the retail banking front. The retail loans grew at a healthy pace of 23.4%YoY during the quarter. Retail loans now accounts for 45% of the overall advances as compared to 42% a year ago. The bank has increasingly shifted its focus to retail banking and the same is reflected in their numbers. Retail loans have grown at a CAGR of 27% for a five-year period from March-12 to March-17.
  • Beneath the retail loan category, personal loans and small business banking loans grew at a robust pace of 36% and 79% respectively.

    Financial Snapshot
    Rs (m) 2QFY17 2QFY18 Change 1HFY17 1HFY18 Change
    Interest income 111,591 112,351 0.7% 222,730 222,876 0.1%
    Interest expense 66,452 66,955 0.8% 132,422 131,318 -0.8%
    Net Interest Income 45,139 45,396 0.6% 90,308 91,558 1.4%
    Net interest margin (%) 3.64% 3.45%   3.60% 3.53%  
    Other Income 25,397 25,855 1.8% 52,779 55,854 5.8%
    Other Expense 29,534 33,478 13.4% 57,392 66,726 16.3%
    Provisions and contingencies 36,227 31,404 -13.3% 57,399 54,823 -4.5%
    Profit before tax 4,774 6,369 33.4% 28,296 25,861 -8.6%
    Tax 1,584 2,045 29.2% 9,550 8,482 -11.2%
    Profit after tax/ (loss) 3,191 4,324 35.5% 18,746 17,380 -7.3%
    Net profit margin (%) 2.9% 3.8%   8.4% 7.8%  
    No. of shares (m)*         2397.7  
    Book value per share (Rs)         234.28  
    P/BV (x)*         2.2  

    *Book value as on 30th September 2017

  • Net Interest income grew marginally by 0.6% YoY during the quarter. Net interest margins (NIMs) deteriorated to 3.45% during the quarter from 3.64% a year ago. The deterioration was mainly on account of a slight reduction in the yield earned on advances. The bank expects further deterioration in NIMs by 0.20% by the end of the current fiscal year.
  • The net profits grew by 35.5% mainly on the back of lower provisions and contingencies. The provisions reduced by 13% YoY as compared to a year ago. The profits had taken a hit in the same quarter in the preceding year mainly on account of the RBI's initiative to clean up the books of the banks. Hence, the company had provided for a hefty sum as provision in the same quarter in the preceding year. Thus, the profits seem higher on account of lower base.
  • The main highlight of its results is the deteriorating asset quality. Fresh slippages during the quarter came in at a massive Rs 89.36 billion as compared to Rs 35.19 billion in the preceding quarter. The daunting part is that a large chunk of the slippages has come from outside the watchlist as provided by the bank.
  • Talking about the watchlist, of the Rs 226.2 billion watchlist, 73% of the same has already turned bad. Hefty divergences too are getting reported by the Reserve Bank of India (RBI). Recently, RBI directed the bank to consider advances worth Rs 48.6 billion as bad after conducting an annual risk based supervision for fiscal year 2017.
  • Both the gross (5.9%) and net NPA (3.1%) levels were higher than 4.1% and 2% levels respectively in September 2016. The provision coverage ratio declined and is presently at 60% at the end of September 2017. The same stood at 65% in the preceding quarter.
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