Axis Bank - Trending From Good to Better; Result Update Q4FY15 ::Edelweiss

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Axis Bank registered another impressive quarterly performance, recording core operating profit growth of 23% YoY. Asset quality once again came in well within guidance (INR30bn) with incremental stress (slippage + restructuring) at INR21.5bn. Key highlights: 1) healthy NII growth – 20% YoY on strong loan growth (22% YoY) and best-in-class  NIMs (reflection of strengthened liability franchise - SA plus retail TD at over 60% versus 45% in FY12);  2)  stress asset formation guidance for FY16 which is lower than INR55bn generated in FY15 lends comfort; and 3) one-off gain of INR1.5bn as repatriation of foreign exchange profits have been put to good use by creating an additional contingent provision of INR2bn. Our 'BUY' conviction is derived from the bank's de-risking strategy underpinned by retailisation. Progress this far on vital variables, viz., share of retail assets and liabilities has been commendable.

Asset quality: In comfort zone

Defying concerns surrounding higher incremental stress in Q4FY15(as the bank had retained their annual stress formation guidance of INR65 for FY15) - stress formation came in well within guidance . Though stress formation in Q4FY15 was higher than quarterly averages, the comforting fact was that slippages were well within control - the increase was largely on account of restructuring being the last quarter for restructuring dispensation.

Re-rating theme well on track

The bank is within striking distance of best-in-class funding cost. This, along with lower asset quality baggage, has enabled it to capture incremental corporate growth opportunities (forex and highly rated corporate). We expect the bank to further leverage on this and trace higher growth (gain market share). This, along with stable NIMs, will help it deliver consistent earnings CAGR of 20+% over FY15-17E

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https://www.edelweiss.in/research/Axis-Bank--Trending-From-Good-to-Better;-Result-Update-Q4FY15/28881.html