Axis Bank Q1 Review - Placed As The Top Pick In May 2022, Investment Thesis Remains Intact: Yes Securities

Yes Securities Report

While cost of deposits would continue to rise for Axis Bank Ltd., structural factors aiding margin continue to remain at play:

Three basis points of the sequential decline in net interest margin was attributable to the lack of interest on income tax refund in Q1. The remaining 9 bps was attributable, as such, to business as usual reasons.

Cost of deposits has risen 31 bps QoQ to 4.64%. The rise in cost of deposits was materially offset by a rise in yield on advances.

Share of loans and investments stood at 88% of total assets, up 113 bps QoQ. Share of Indian rupee book stood at 95.6% of total loan book, up 70 bps QoQ.

Share of retail and consumer banking group loans was 68% of advances. Share of rural infrastructure development fund assets has declined from 3.58% of total assets a year ago to 2.29% as of June 2023.

Operating expenses have risen materially but that is largely along expected lines:

There were three key underlying reasons for the rapid sequential rise in staff expenses. Increments have been offered in the June quarter. 8366 people have been added over the past 12 months and there has been a sequential rise as well.

There was also a marginal impact on gratuity due to interest rate movement. It may further be noted that for Q4, the Citi business expenses were accounted for only the final month of March. In general, the Citi business is entirely retail and a higher opex business.

We reiterate 'Buy' rating on Axis Bank with a revised price target of Rs 1300:

We had placed Axis Bank as the very top pick for the first time in our report dated May 2022. We value the standalone bank at 1.9 times FY25 price/book value for an FY24E/25E/26E return on equity profile of 18.1%/17.9%/17.3%. We assign a value of Rs 121 per share to the subsidiaries, on SOTP.

Result Highlights

• Asset quality: Gross slippages amounted to Rs 39.9 billion (annualised slippage ratio of 1.9%) and recoveries and upgrades were healthy at Rs 23.05 billion.

• Margin picture: NIM at 4.10% was down -12 bps QoQ, where the unfavorable impact of -5 bps was due to fall in spreads and -4 bps due to interest reversals.

• Asset growth: Advances grew 1.6%/22.4% QoQ/YoY driven sequentially by large and mid-corporate loans and by few segments in retail loans.

• Opex control: Total opex rose 10%/26.7% QoQ/YoY, employee expense rose 24.3%/23% QoQ/YoY and other expenses rose 4.5%/28.6% QoQ/YoY.

• Fee income: Fees income fell/grew -4%/25.5% QoQ/YoY, where retail banking fees de-grew/grew -2.5%/32.5% QoQ/YoY.

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