Last Updated : Nov 02, 2018 11:50 AM IST | Source:

Axis Bank preview: Double-digit earning growth likely in Q2 on lower provisions

Brokerage houses expect profit growth for the quarter in the range of 40-90 percent compared to year-ago

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Axis Bank, the country's third largest private sector lender, is expected to report double-digit growth in earnings for the quarter ended September 2018. Low base due to higher provisions in Q2FY18 and fall in provisions may support strong profit growth.

The stock was one of the outperformers as it rallied 20 percent during September quarter and 7 percent year-to-date due to early recovery bad loans.

Brokerage houses expect profit growth for the quarter in the range of 40-90 percent compared to year-ago.

Prabhudas Lilladher expects the maximum growth of 91 percent YoY. Emkay Research and Nomura expect 80 percent each, Kotak 43 percent, and Motilal Oswal 56 percent.

Provisions for bad loans are likely to decline in the quarter ended September 2018 as not only Axis Bank but also other banks made maximum provisions till Q1FY19.

"Provisions should come off from previous levels, the bank will also take some PCR improvement," said Prabhudas Lilladher which expects provisions falling 10 percent YoY and 15 percent QoQ.

Kotak expects 18 percent YoY and 10 percent QoQ fall in provisions while Nomura sees 11 percent YoY and 16.4 percent QoQ decline.

Net interest income is also expected to grow in double-digits on stable loan growth and margin.

"NII growth should hold as margins stabilise (removing the benefit of IT refund in Q1FY19), and expect a slight improvement in loan growth," said Prabhudas Lilladher which expects NII growth at 14 percent YoY.

Motilal Oswal expects Axis Bank to report around 12 percent loan growth, driven by continued strong growth in the retail and SME segments. "Deposit growth is likely to be around 11 percent, resulting in an elevated CD ratio of around 99 percent."

Emkay Research, which sees 20 percent NII growth, said business momentum should continue to stay robust, with retail loans continuing to lead growth. "We expect margin trajectory to improve in Q2FY19."

Asset quality is likely to be stable, but slippages might remain elevated in the quarter ended September 2018.

Prabhudas Lilladher expects gross non-performing assets as a percentage of gross advances to decline by 21bps sequentially while Emkay Research expects Axis Bank to continue moving toward normalisation in slippages and credit costs. "We expect the bank's sub-investment grade pool to generate slippages."

Kotak, which expects slippages of Rs 3,500 crore, said benefit from NCLT cases would be lower in Q2FY19.

Net stressed loans for the bank has declined to 6.7 percent, while the bank has already improved its coverage ratio to 69 percent.

"Though there are some signs of recovery in NPL cycle, we still expect slippages to remain at elevated levels (around 4.5 percent annualised slippage ratio), as the bank proceeds to clean up its balance sheet (this should lead to high credit costs, which is expected to start normalising from second half of FY19)," Motilal Oswal said.

With just around Rs 10,000 crore of stress book left to be recognised, Nomura expects slippages to normalise with some normalisation in retail/agri slippages.

Key issues to watch out for

> Quantum of corporate slippages from BB and below list and any revision in the size of the stressed assets

> Bank's strategy on retail and unsecured loans

> Liquidity situation and the commentary on the margin/growth outlook

> Movement of investment grade portfolio would be the key metric to monitor
First Published on Nov 2, 2018 11:50 am
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