Axis Bank will report its January-March quarter earnings today, April 28. The third-largest lender is expected to report a decline in Q4 FY20 profit on the back of higher loan loss provisions though lower tax rate may cushion the fall.
Most brokerages expect a double-digit decline in profit after tax which could fall as much as 62 percent year-on-year, while net interest income could grow by more than 16 percent YoY due to slower loan growth (around 15 percent) amid economic crisis and stress in the retail and MSME segment. However, they expect the margin to be stable.
"We expect loan growth at 15 percent YoY with a greater focus on retail. NIM will be unchanged at 3.6 percent (led by loan composition and funding costs)," said Kotak Institutional Equities which sees profit declining 47 percent and net interest income rising 16.3 percent YoY.
According to ICICI Direct, margins are estimated at around 3.5 percent thereby leading to NII growth of 19.8 percent YoY.
Provisions are expected to be higher due to COVID-19 led current economic crisis and slippages are also likely to be on the higher side due to stress in retail and MSME segments, but asset quality is expected to be stable due to the moratorium announced by the RBI.
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"Given the current economic situation, provisions are expected to remain higher at around 65 bps in Q4 FY20 versus 55 bps in Q4 FY19. As banks would not be recognising any NPAs during the moratorium period, the gross NPA ratio is expected to be steady at 5.1 percent. Telecom exposure of Rs 16,000 crore remains a hangover ahead. Extension of lockdown could lead to a further slowdown of crucial sectors, thus adding to asset quality worries," said ICICI Direct.
Kotak also expects an unchanged gross NPL and below investment grade loan portfolio, but it expects slippages of around Rs 5,000 crore (3.5 percent of loans) mostly from 'below investment grade book'.
Muted fee income and higher operating expenses may slow growth in pre-provision operating profit (PPoP) for the quarter, brokerages feel.
"Muted fee growth and an 11 percent rise in operating expenses will result in slower PPoP growth (11 percent YoY, down 3 percent QoQ)," said HDFC Securities while modelling 3 percent slippages for the March quarter against 4.6 percent QoQ and 2.5 percent YoY.
Kotak expects a 9.9 percent decline YoY in fee income, 31 percent in treasury income and 9.9 percent growth in PPoP.
Axis Bank share price fell 50 percent in the quarter ended March 2020 and lost 51 percent in FY20, while the year-to-date (2020) loss stood at 44 percent, underperforming the Nifty Bank which fell 40.5 percent, 37 percent and 39 percent respectively.
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