Axis Bank (AXSB) reported a loss of Rs 57.3 bn in the last quarter, mainly due to an exceptional item of Rs 123.5 bn related to Citi’s acquisition, policy harmonisation, and other related costs. However, if we exclude these one-offs, the adjusted PAT came in at Rs 66.3 bn, which is a 61% y-o-y increase and 10% higher than the estimated value. The significant reduction in provisions drove this growth. While NII/PPoP missed expectations, the margin remained almost unchanged on an adjusted basis. The loan growth was robust, rising 16% y-o-y and 7% q-o-q (excluding Citi). This growth was fueled by strong growth across all segments. The deposit growth was also healthy, with an increase in CASA and retail deposits during the quarter. Fresh slippages moderated to Rs 33.8 bn, which coupled with healthy recoveries and upgrades led to an improvement in asset quality ratios. Restructured book was under control at 0.22% of customer assets in Q4FY23. We tweak our estimates slightly and expect AXSB to deliver RoA/RoE of 1.9%/ 18.1% in FY25.

PPoP miss led by a miss on NII; margins moderate slightly

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Axis Bank’s Q4FY23 adjusted PAT grew 61% y-o-y to Rs 66.3 bn (10% beat), largely driven by lower provisions. In FY23, adjusted PAT grew 68% y-o-y to Rs 219.3 bn .NII grew 33% y-o-y to Rs 117.4 bn even as loan growth remained healthy. Reported margin contracted 4bp q-o-q to 4.22%. Other income grew 16% y-o-y (in line), driven by 24% y-o-y growth in fee income while treasury gains stood modest at Rs 830m. Opex grew at a healthy pace as the bank continued to invest in the business. As a result, the C/I and cost-to-assets ratios (annualised) increased to 44.9% and 2.4% in Q4FY23. PPoP grew 42% y-o-y to Rs 91.7 bn. In FY23, PPoP rose 30% y-o-y to Rs 320.5 bn.

Total provisions declined sharply to Rs 3.06 bn. The annualised credit cost (net) declined to 22bp. The bank did not utilise any Covid-related provisions and held an additional provision buffer of Rs 119.3 bn.

The loan book grew 16% y-o-y and 7% q-o-q in Q4FY23, with Retail/SME loans up 7%/13% q-o-q and corporate loans growing healthy at 6% q-o-q. On the liability front, deposits grew 10% y-o-y and 7% q-o-q led by CASA deposits, which rose 10% y-o-y. The CASA ratio, thus, increased to 46%, while CASA plus retail term deposits stood at 79% during the quarter. On the asset quality front, fresh slippages moderated to Rs 33.8 bn, which coupled with healthy recoveries and upgrades led to a 36bp/8bp q-o-q improvement in GNPA/NNPA ratios. The net NPA ratio declined to 0.39%, while PCR was stable at 81%. Restructured loans stood at 0.22% of customer assets with PCR of 22%. BB and below pool fell to 0.65% in Q4FY23.

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The bank has a strong pipeline in the corporate book and thus expects healthy traction in corporate growth to continue. AXSB remains committed to bring down the cost-to-assets ratio to 2% in the medium term. Loan growth for FY24 is expected to be 400-600bp higher than the industry. The bank is planning to add 500 branches in FY24E.