Axis Bank’s 22% profit after tax (PAT) miss was led by 69% miss on provisions and 7% miss on operating expenses. Net income was 5% higher than our estimate, led by strong trading gains of `900 crore (13% of net income v/s an average of 5% over the last three years). While core PPoP growth (+3% y-o-y) remained tepid, strong loan growth
(21% y-o-y), improving momentum in CASA growth (18% y-o-y) and continued healthy NIM of 3.8% were the key positives.
Slippages increased to an all-time high of `3,640 (5.1% slippage ratio). 3/4th of the slippages during the quarter came from the watch list reported in Q4FY16. Slippage ratio excluding the watch list remains well within control at 1% (annualized). Total stress loans (NNPA + watch list + other RL) declined 7% q-o-q to `28,800 crore (down 80bp q-o-q to 8.4%). Within the watch list, three sectors — services, mining and cement contributed the bulk of incremental slippages.
At the income level, our estimates are largely unchanged (non-core income compensating for moderation in core income). However, higher than expected operating expenses are leading us to cut our PPoP estimates by 1-5% for FY17-19. This coupled with management focus on maintaining 70% PCR is leading to 7% earnings cut. We expect 1.3% RoA and 14% RoE over FY17-18. Based on RI model, our target price is `600 .