Axis Bank Q2FY18 Concall Summary

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 Financial Highlights

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  • Tier-1 capital has been declining and is at 118% at the end of Q2 as compared to 287% at the end of FY ’11.
  • Made additional provisions of Rs.505 Crores in this quarter towards the various lists of IBC accounts.
  • Trading income for the quarter has been Rs.377 crores.
  • Axis Bank’s retail fee grew at a CAGR of 19% over the last 4 years and has turned into more annuity based.
  • Operating expenses growth normalized to 13% YoY.
  • Operating profit margin has been 2.39% compared to 2.95% in Q2 last year and 2.87% in Q1 if this FY.
  • Cost to average assets was at 2.17% for the quarter.
  • Provision coverage ratio has been 60% for Axis bank.
  • Cost of fund stood at 5.18% compared to 5.24% in Q1 and 5.68% in Q2.
  • Net profit grew by 36% YoY to Rs.432 crores. Net interest income has been 3.45% for the quarter with domestic net interest income at 3.71%.
  • Gross slippage for the Quarter
  • Axis Bank’s ROE and ROA for the first half has been 6.852% and 0.57% respectively.

Operational Results:

  • Overall CASA balances grew by 24% YoY, although CASA ratio stood at 50% and CASA ratio of total deposits has been 46%.
  • CASA retail term deposits formed a strong base at 83% of total deposits and are Up by 224 basis points YoY.
  • The CAR (Capital adequacy ratio) stood at 16.32% with a tier 1 capital of 12.36% and a CETI of 10.95%.
  • Loan growth has been largely driven by 23% increase in retail and 15% in SME. Also, retail fee grew at 23% whichcontributed 48% from total fee income.
  • Axis bank’s saving account balance and current account balance grew by 21% and 28% YoY and by 7% and 11% QoQ respectively.
  • Net interest margin for the first half of this FY has been 3.53% compared to last year average of 3.67%.
  • Axis bank’s short term non-fund exposure in telecom is near to Rs.8000 crores and that too is among the top 3 players so, that is AAA or AA.
  • Only 10% of Axis bank’s outstanding loan is under base rate.
  • Fee income growth has been healthy at 12% and constituted 30% of operating revenue.
  • Share of fee from cards has increased from 26% in FY ’13 to 39% in FY ’17. Also, card fee has grown by 36% YoY.
  • Growth is driven by small business banking and education loans which continue to grow at 79% and 115% respectively.
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  • Axis Bank opened 100 new branches in this Quarter.
  • Axis Finance’s loan book growth YoY was 65% in first half, Revenue growth YoY was 19% to Rs.341 crores and PAT grew to Rs.101 crores.
  • Axis Capital reported 5 times increase in value of deals executed during the quarter to Rs.11021 crores. Also, Revenue growth was 21% to Rs.152 crores and PAT growth was 39% to Rs.688 crores for the same
  • Axis Securities, the broking business currently is in top 3 brokers in India, Client base increases by 37% in H1, total revenue growth was 32% to Rs.438 crores, led by 37% increase in broking revenue. Also, the PAT grew by 44% to Rs.26 crores.
  • Axis AMC, reported 46% YoY growth during the quarter, led by 23% YoY rise in number of client-folios.
  • 86% of the corporate slippage is contributed by the pool that is BB or below.
  • Axis bank’s spend has been about Rs.10000 crores through credit cards in this quarter.
  • Axis bank’s term deposit cost has dropped by 19 basis points in this quarter.
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Asset Quality

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  • Gross NPA ratio stood at 5.9% at the end of Sep ‘17which is Rs.27000 crores (Rs.22000 crores from corporate and Rs.5000 crores from SMEs)as compared to 5.03% at the end of June ’17.
  • Lending at BB or below level is about 11% so, corporate exposure is about Rs.20000 crores.
  • Net NPA ratio has increased from 2.3% in June ’17 to 3.12% in Sep ’17.
  • 9 Accounts (amounting to Rs.40000 crores) were reclassified by RBI which is about 6% of total outstanding accounts being classified as NPAs across the sector, worth of these accounts amount to Rs.4867 crores.8 of these accounts are consortium accounts.
  • Out of the 9, one is from steel sector of Rs.1128 crores, power sector has 3 accounts of net Rs.1685 crores, 1 account is from IT/ITES sector of Rs.1143 crores and the remaining 4 comprise Rs.911 crores.
  • Rs.1600 crores is part of the restructured dispensation.
  • PBDD created of Rs.1618 crores for these 9 accounts during this quarter. Maintaining a provision coverage ratio in 60-65% range.
  • Total non-fund based exposure on these 9 accounts has been Rs.900 crores.
  • In Q2, total slippage from the corporate book was Rs.8110 crores of which 73% came from accounts which were rated BB or worse in the previous quarter.
  • Rs.17700 crores are the net power exposure excluding the NPAs of Rs.3300 crores
  • NPA of Rs.3300 crores have been accounted from power sector with provisional coverage of 45%.
  • Telecom is not part of Axis bank’s top 10 industry segment and is just 1% of overall exposure totaling to Rs.2500 crores.
  • Outstanding BB exposure in this quarter has been Rs. 3500 crores driven by slippage in upgradation and down-gradation of loans from BBB to BB (net downgrades in range of 1500 to 2300 crores).

Strategies and Challenges:

  • Acquisition of Freecharge will help AXIS bank in further augmenting its digital capabilities. Also, it will help Axis bank capture the unique preposition offered by fintech and wallet companies.
  • Freecharge has a user base of 54 million with gross merchandise value of Rs.7200 crores and 213 million transactions.
  • Axis banks accelerated recognition of NPLs, provided with reduction in overall stressed assets.
  • Strong retail franchises had been the driving force for the financial performance for the company.
  • Focus has been on providing loans for affordable housing, thus disbursed loans to 32673 families by Aug 2017.
  • Retail loan sourcing is mostly driven by internal customers, contributing 72% in Q2. Also, 97% of the credit cards and 78% of personal loans also originated from existing customers.
  • 50% sourcing is through branches; hence, Axis Bank is focusing on developing a deeper branch network.
  • Incremental sanctions to Corporates with 85% of the loans to companies rated A or better.
  • 87% of advances are to power generation, of which 78% to coal based. Also, out of these projects 85% are operational as of Sep 30, 2017.
  • If the asset is standard in power sector then, it will keep generating interest. So, if a account is paying normally then, it will have a AAA rating otherwise it will have a BB rating.
  • In SME sector focus has been to drive growth by quality of the book.

Forecasts:

  • Loan growth momentum is back upto some level driven by pickup across all segments specially working capital loan segment.
  • Working capital loans grew by 36% YoY.
  • High slippage in this quarter due to divergence in their annual review process.
  • Axis bank has been ranked in the top 10 most valuable brands in India in this quarter.
  • Axis bank continues to keep a leadership position in transactions and payments space.
  • 60% of the customers are digitally active and 40% prefer only mobile app with mobile terminal being used 4 times more than the internet terminal.
  • Axis Bank’s debt and capital markets platform continues to be a market leader. Also, Axis bank is continuing to top Bloomberg league table for corporate bonds for the 10th consecutive year.
  • Axis bank is expecting higher volatility in margins.

Growth and Market Share:

  • Axis bank has been ranked #2 in mobile banking spends as per the latest RBI data.
  • Axis’s Term deposits grew by 2% and wholesale term deposit grew by 3%. 
  • Retail term deposits, excluding FCNRB grew by 8% in the quarter, Retail loans grew at 23%.
  • Overall deposit growth for the quarter stood at 10% YoY.
  • Near about 7% credit growth in this quarter and stood at 16% YoY. Corporate loan growth has been up by 10% YoY and in Q2 from 3% in previous quarter.
  • Working capital loan grew by 36% YoY.
  • Axis Bank’s Credit card, personal loans and auto loans grew by 51%, 36% and 33% respectively.
  • SME loans are also growing at a faster pace than before.
  • The bank has 3.8 million credit cards working at the end of this Quarter. Thus, having the 4th largest credit card base in the country with a market share of 11%.
  • Credit card spend grew by 56% YoY to Rs.9915 crores and Debit card spend grew by 84% YoY to Rs.7564 crores.
  • Overall digital transaction increased by 42% YoY.
  • Mobile banking spends in Q2 increased by 78% YoY driven by 29% growth in transaction volumes.
  • Among the first four banks to go live on UPI platform, helped in creation of more than 2.1 million virtual payment addresses. Axis has 4.5 million registered customer base.
  • Axis Bank has been ranked 2nd in mobile banking benchmarking for functionality by Forrester’s in 2017 for all Indian Banks.
  • Axis bank is the 2nd largest acquirer of POS (point of sale) terminals with a n installed base of 4.7 lakh terminals.
  • Axis Bank’s bond share in Indian bond market has been 22% compared to 18% for the same period in last year.
  • Loan growth in SME sector has been 15% YoY. Also, the growth has been broad based as term loans and Working capital loans both grew by 18% and 14% respectively.
  • Share of Working capital in overall SME loan stands at 78%.
  • Share of retail loan stood at 45% of total loans in Q2.
  • Share of home loans in the overall retail book have come down steadily from 54% in FY ’13 which is now stand at 43% in Q2.

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