Monday, 30 January 2017

Axis Bank: 485-495 May Be A Big Hurdle In The Coming Days; Management Credibility May Be At Stake Regarding Its NPA/NPL Management & Actual Resolution May Be Very Tepid



NIM May Come Under Severe Pressure As Yields On Retail Loans Are Falling Fast As Competition Heats Up After Demonetization Led Digital Banking Theme

29/01/2017 (19:30)

Trading Idea: Axis Bank

LTP: 473

Sell on rise around 485-495

TGT: 440-415 & 365-330 (1-3 & 6-12M)

TSL> 501 OR > 515 (+0.5% from TSL)

Note: Sustaining above 501 zone, Axis may further move towards 515 zone, which is a strong positional resistance for the stock and only consecutive closing above 515 area for any reason, it may further rally towards 535-555 & 605-655 zone in the near to long term (under bullish case scenario).

Any one holding long position in the stock or planning to do so, may also watch 464-454 area as near term positional support for the stock as of now.


Valuation Metrics
Q3FY17
Q4FY17E
FY-17E
Q1FY18
FY-18
FY-18*
FY-18*
AVG EPS
19.24
14.75
14.75
12.63
16.45
8.25
27.95
AVG PE
20
20
20
20
20
20
20
AVG FAIR VALUE
384.80
295.00
295.00
252.60
329.00
165.00
559.00

Q3FY17 EPS: 2.41 (Actual Reported/Diluted)

Q3FY17 TTM EPS: 19.24 (Actual)

Average PE: 20 (15-25)* 

Fair valuation: 385 (Q3FY17 TTM)

*By considering average EPS growth of around 19% for the last few years (FY: 12-16 before RBI AQR); 

Projected Q4FY17 EPS: 2.37

Projected FY1-17 EPS: 14.75-12.60 (Q4FY17 TTM Estimated/Consensus); 
(Although as par present trend, it may come around 12.60)

Projected Fair Valuation: 295-252 (FY-17 estimate/median-worse)

Projected FY-18 EPS: 16.45 (median); best-worst: 27.95-8.25

Projected fair valuation for FY-18: 329 (median estimate)

Best case scenario: 559 (FY-18 estimate)

Worst case scenario: 165 (FY-18 estimate)

Analyst’s projection for FY-17 & FY-18 EPS after Q3FY17 results:

ANALYST PROJECTION (EPS)
FY-17
FY18
IDIRECT
13.9
27.7
CENTRUM
16.2
32.9
KR CHOKSEY
13.4
24.6
EDL
16.7
38.3
RELIGARE
14.6
32
REUTERS
15.88
31.8
MY TREND
12.6
8.25
AVG
14.75
27.94



TTM Q1FY18 (MY TREND)

8.44
REUTERS

16.82
AVG

12.63

FY-17 EPS may fall to 14.75 from FY-16 EPS of 34.40; i.e by around 57% due to huge RBI AQR related legacy & normal provisioning. Now, depending upon the actual resolution process, Axis may report 10% average EPS growth from FY-18 onwards after normalization (although very low probability as par the present recovery trend of its huge NPL, where around only 1% being recovered from its NPL/NPA). 

Looking ahead, irrespective of the recognition process (watch list/AQR etc), Axis Bank as also other affected banks has to hasten the process of true resolution (actual recovery of NPA/NPL or even sale to ARC at reasonable discount). But, actual resolution process may be quite painful unless situation on the ground improves drastically; i.e. there must be consistent signs of overall economic recovery and revival of consumption/investment cycle. 

Mere change in management or asset sale may not work in most of the stressed assets case, as new management can’t ignite demand overnight and there may be not so much interested buyers for stressed assets also; even no one can show interest for buying a default property for various probable future legal disputes and at elevated reserved prices (recent example of repeated failure in sale of KFA assets).

Fall in property prices after demonetization may also make the task of the banks to sell their NPA assets even more harder, as banks has to lower the reserve prices also, whereas those assets may be valued at significantly higher prices at the time of sanction of loans; i.e. significant hair-cut has to be borne by the banks.

For Axis, average EBITDA growth is around 30%; but it may fall in the coming days as NIM may come under severe pressure and may fall towards 3.39-3.18% in FY: 17-18 and more in the coming years from present 3.61% (Q3FY17) as yields on retail loans are falling fast amid tight competition between the traditional & new bankers (PSBS and the old & new private banks as also small payment banks after demonetization led digital banking thrust). 

High NIM >4% for the Indian private banks may be in question in the coming days amid elevated credit costs and tepid corporate loan growth; all the banks are now basically chasing retails & SMES for their credit growth, which may also turn into another bubble in the coming months amid various uncertainties out of demonetization & “war on informal economy/black unaccounted money”. Also, Trump’s trade protection & “America First” policy may not be good for Indian service sector, especially for the IT outsourcing, which is traditionally a strong backbone for the great Indian retail story over the years. Any disruption in the Indian IT sector may also cause significant pressure on the retail banking assets including Axis Bank. 

For Axis bank, as on Q3FY17, around 5% of retail + SME loan portfolio may be stressed, whereas for corporates it’s around 14%. Overall, around 9% of total credit given by the bank may be stressed as on Q3FY17 and as par various estimates, it may touch 12-15% or more by FY: 17-18 in line with other Private bank (ICICI) & PSBS (legacy issues of over leverage by the Indian corporates & banks in 2010-12 period; the great Indian problem of “Twin Balance Sheet”). In that scenario, it may be safe to assume that around Rs. 42000-52000 cr may be stressed for the bank against an overall advance (loan given) figure of Rs.347175 cr as on Q3FY17.

The primary concern may be that the bank is able to recover/upgrade only Rs.350 cr out of its reported GNPA of Rs.20466.82 cr and total NPL of around Rs.31556.82 cr (GNPA+WL) in Q3FY17.

Axis bank reported very poor & way below estimate Q3FY17 earnings on 20th Jan’17 and subsequently the stock corrected quite good and then rebounded decent in the last few days supported by general upbeat sentiment of the market for budget hopes and by the assurance of the management that its NPA cycle may be over.

The main highlights of the Q3FY17 result are: (Rs.in Cr)

Q3EPS: 2.41 against estimate of 2.78 (YOY: 9.09; QOQ: 1.33); i.e. it lags consensus by over 13%.

PAT: 579.57 against consensus of 816 (YOY: 2175.30; QOQ: 319.08); i.e. it lags estimate by around 29%.

NII: 4333.73 (estimate: 4568.50; YOY: 4162.06; QOQ: 4513.07)

Provision: 3795.80 (exceeds analysts’ estimates significantly; YOY: + 432.68%; QOQ: + 4.78%)

To be cont for more update----




AXIS-QTR
Dec '16
Sep '16
Jun '16
Mar '16
Dec '15
YOY
QOQ
AVG
AVGR
SGR
PROJ(%)
Q4FY17
Q1FY18














Interest Earned













(a) Int. /Disc. on Adv/Bills
8,156.41
8,386.18
8,319.81
8,093.40
7,529.37
8.33
-2.74
8082.19
0.92
1.96
0.55
8201.61
8247.05
(b) Income on Investment
2,416.67
2,380.58
2,436.28
2,420.80
2,292.82
5.40
1.52
2382.62
1.43
1.29
1.40
2450.41
2484.62
(c) Int. on balances With RBI
204.22
76.75
57.59
63.84
68.76
197.00
166.08
66.74
206.02
45.46
116.70
442.55
959.03
(d) Others
323.7
315.6
300.22
320.92
302.38
7.05
2.57
309.78
4.49
1.75
2.64
332.26
341.04
INTEREST INCOME
11,101.00
11,159.11
11,113.90
10,898.96
10,193.33
8.90
-0.52
10841.33
2.40
2.08
1.55
11272.61
11446.88
Other Income
3,400.21
2,539.66
2,738.28
2,694.01
2,337.78
45.45
33.88
2577.43
31.92
10.37
21.89
4144.37
5051.39
TOTAL REVENUE
14,501.21
13,698.77
13,852.18
13,592.97
12,531.11
15.72
5.86
13418.76
8.07
3.62
5.37
15279.64
16099.86
EXPENDITURE













Interest Expended
6,767.27
6,645.24
6,596.98
6,346.37
6,031.27
12.20
1.84
6404.97
5.66
2.87
3.35
6994.21
7228.77
Employees Cost
991.88
988.83
963.18
907.88
829.54
19.57
0.31
922.36
7.54
4.42
4.29
1034.43
1078.82
Other Expenses
2,101.83
1,964.52
1,822.65
1,940.19
1,685.24
24.72
6.99
1853.15
13.42
5.46
8.01
2270.25
2452.17
TOTAL OP EXPENDITURE
9,860.98
9,598.59
9,382.81
9,194.44
8,546.05
15.39
2.73
9180.47
7.41
3.53
4.38
10293.05
10744.04
EBITDA
4,640.23
4,100.18
4,469.37
4,398.53
3,985.06
16.44
13.17
4238.29
9.48
3.98
7.69
4996.90
5380.98
Depreciation
0
0
0
0
0
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
EBITA
4,640.23
4,100.18
4,469.37
4,398.53
3,985.06
16.44
13.17
4238.29
9.48
3.98
7.69
4996.90
5380.98
Provisions & Contingencies
3,795.80
3,622.74
2,117.17
1,168.33
712.59
432.68
4.78
1905.21
99.23
49.03
65.30
6274.52
10371.89
Exceptional Items
0
0
0
0
0
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
PBT
844.43
477.44
2,352.20
3,230.20
3,272.47
-74.20
76.87
2333.08
-63.81
-7.83
-3.33
816.31
789.13
Tax
264.86
158.36
796.67
1,075.92
1,097.17
-75.86
67.25
782.03
-66.13
-10.20
-7.01
246.29
229.02
PAT
579.57
319.08
1,555.53
2,154.28
2,175.30
-73.36
81.64
1551.05
-62.63
-6.65
-1.50
570.89
562.34
Equity Share Capital
478.28
477.95
477.46
476.57
475.78
0.53
0.07
476.94
0.28
0.13
0.15
479.01
479.75
EPS
2.42
1.34
6.52
9.04
9.14
-73.50
81.51
6.51
-62.77
-6.77
-1.60
2.38
2.35
EPS (REPORTED)













Basic EPS
2.42
1.34
6.52
9.05
9.15
-73.55
80.60
6.52
-62.85
-6.98
-1.91
2.37
2.33
Diluted EPS
2.41
1.33
6.49
9.01
9.09
-73.49
81.20
6.48
-62.81
-6.79
-1.69
2.37
2.33
TTM EPS
19.24
25.92









12.60
8.44
NPA Ratios :













i) Gross NPA
20,466.82
16,378.65
9,553.17
6088
5,724.05
257.56
24.96
9435.97
116.90
39.83
61.52
33057.91
53394.98
ii) Net NPA
8,294.78
7,761.15
4,010.23
2522
2,514.09
229.93
6.88
4201.87
97.41
39.93
50.42
12477.40
18769.09
i) % of Gross NPA
5.22
4.17
2.54
1.67
1.68
210.71
25.18
2.52
107.55
35.21
55.16
8.10
12.57
ii) % of Net NPA
2.18
2.02
1.08
0.7
0.75
190.67
7.92
1.14
91.65
35.53
45.69
3.18
4.63
ROA(%)
0.39
0.23
1.19
1.68
1.79
-78.21
69.57
1.22
-68.10
-11.71
-7.45
0.36
0.33
NII
4,333.73
4,513.87
4,516.92
4,552.59
4,162.06
4.12
-3.99
4436.36
-2.31
0.93
-1.08
4286.72
4240.22
OPM(%)
32.00
29.93
32.26
32.36
31.80
0.62
6.91
31.59
1.30
0.28
2.16
32.69
33.40
NP(%)
4.00
2.33
11.23
15.85
17.36
-76.98
71.59
11.69
-65.82
-11.59
-6.27
3.75
3.51
NIM(%)
3.61
3.93
4.04
4.24
4.04
-10.64
-8.14
4.06
-11.14
-2.72
-6.16
3.39
3.18
ADV













RETAIL
149538.00
149284.00
143159.00
138521.00
125796.00
18.87
0.17
139190.00
7.43
4.25
4.14
155732.14
162182.85
SME
43208.00
45857.00
43611.00
44869.00
41186.00
4.91
-5.78
43880.75
-1.53
1.19
-1.22
42680.01
42158.47
CORPORATE
154429.00
158029.00
158155.00
155384.00
148385.00
4.07
-2.28
154988.25
-0.36
0.98
-0.16
154182.64
153936.67
TOTAL ADV
347175.00
353170.00
344925.00
338774.00
315367.00
10.09
-1.70
338059.00
2.70
2.35
1.47
352274.19
357448.27
GNPA UPGRADE/RECOVERY
350.00
1073.00
140.00
780.00
156.00
124.36
-67.38
537.25
-34.85
149.25
19.53
418.34
500.03
RECOVERY/GNPA(%)
1.71
6.55
1.47
12.81
2.73
-37.25
-73.90
5.89
-70.96
65.83
-22.09
1.33
1.04
NPA MOVEMENT













OP.BALANCE
16379.00
9553.00
6088.00
5724.00
4451.00
267.98
71.45
6454.00
153.78
39.24
82.87
29951.98
54772.65
FRESH SLIPPAGES
4560.00
8772.00
3638.00
1474.00
2082.00
119.02
-48.02
3991.50
14.24
49.67
11.41
5080.39
5660.17
UPGRDATION/RECOVERY(-)
350.00
1073.00
140.00
780.00
156.00
124.36
-67.38
537.25
-34.85
149.25
19.53
418.34
500.03
WRITE OFFS(-)
122.00
873.00
33.00
330.00
653.00
-81.32
-86.03
472.25
-74.17
567.89
96.84
240.15
472.71
GROSS NPA
20467.00
16379.00
9553.00
6088.00
5724.00
257.56
24.96
9436.00
116.90
39.83
61.52
33058.30
53395.77
GROSS PROVISION(-)
12172.00
8618.00
5543.00
3566.00
3210.00
279.19
41.24
5234.25
132.55
40.53
71.03
20817.67
35604.28
NEP NPA
8295.00
7761.00
4010.00
2522.00
2514.00
229.95
6.88
4201.75
97.42
39.93
50.43
12478.20
18770.99
ACCUMULATED WRITE OFF
2818.00
2901.00
3547.00
3627.00
3717.00
-24.19
-2.86
3448.00
-18.27
-6.44
-8.40
2581.15
2364.21
PROVISIONS (P/L)













LOAN LOSES
3576.00
3648.00
1823.00
906.00
626.00
471.25
-1.97
1750.75
104.26
57.56
69.41
6058.25
10263.54
STANDARD ASSETS
-81.00
-22.00
238.00
258.00
71.00
-214.08
268.18
136.25
-159.45
55.92
27.78
-103.50
-132.26
SDR A/C
17.00
9.00
71.00
22.00
0.00
0.00
0.00
25.50
-33.33
81.07
11.93
19.03
21.30
INVESTMENT
32.00
-37.00
-18.00
0.00
-15.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
OTHER PROVISION
252.00
25.00
3.00
-17.00
31.00
712.90
908.00
10.50
2300.00
451.51
959.43
2669.77
28284.48
TOTAL PROVISIONS
3796.00
3623.00
2117.00
1169.00
713.00
432.40
4.78
1905.50
99.21
49.00
65.27
6273.76
10368.82
PCR(%)
59.47
52.62
58.02
58.57
56.08








PCR(REPORTED%)
64.00
60.00
69.00
72.00
72.00








WL MOVEMENT













OP. BALANCE
11091.00
13789.00
20295.00
22628.00
24000.00
-53.79
-19.57
20178.00
-45.03
-17.00
-23.76
8455.59
6446.40
SLIPPAGE INTO NPA
2579.00
7288.00
2680.00










SLIPPAGE OUT OF WL
1981.00
1484.00
958.00


0.00
33.49
610.50
224.49
60.94
79.73
3560.46
6399.24
TOTAL SLIPPAGE FROM WL
12547.00


55.45









BALANCE WL
10081.00












FRESH ADDITION INTO WL
1070.00












EXIT OUT OF WL
-61.00












FINAL WL
11090.00












TOTAL NPL
31556.82












NPL/ADV(CURRENT)
9.09












RECOVERY/NPL(%)
1.11












CORPORTAE NPL













WL
11090.00












SPL-5/25
2992.00












SDR
1360.00












CDR
6336.00












TOTAL CORPORATE NPL
21778.00












RETAIL NPL
9778.82












CORPORATE ADV
154429.00
158029.00
158155.00
155384.00
148385.00








RETIAL+SME ADV
192746.00
195141.00
186770.00
183390.00
166982.00








NPL/CORP ADV
14.10












NPL/RETAIL+SME ADV
5.07














AXIS-YLY
Mar '16
Mar '15
Mar '14
Mar '13
Mar '12
FY-12-16
FY-15-16
AVG
AVGR
SGR
PROJ(%)
FY-17
FY1-8














Interest Earned













(a) Int. /Disc. on Adv/Bills
30,040.56
25,867.82
21,950.43
19,166.23
15,379.35
95.33
16.13
20590.96
45.89
17.07
25.73
37770.09
47488.44
(b) Income on Investment
9,377.59
9,117.09
8,343.13
7,746.98
6,394.27
46.66
2.86
7900.37
18.70
9.32
10.64
10374.94
11478.37
(c) Int. on balances With RBI
295.25
231.26
166.79
111.26
98.43
199.96
27.67
151.94
94.33
31.94
50.98
445.77
673.04
(d) Others
1,274.64
262.43
180.81
158.1
122.6
939.67
385.71
180.99
604.28
116.92
335.46
5550.49
24169.89
INTEREST INCOME
40,988.04
35,478.60
30,641.16
27,182.57
21,994.65
86.35
15.53
28824.25
42.20
15.78
23.77
50732.82
62794.39
Other Income
9,371.46
8,365.04
7,405.22
6,551.11
5,420.22
72.90
12.03
6935.40
35.13
13.82
19.80
11227.10
13450.19
TOTAL OP REVENUE
50,359.50
43,843.64
38,046.38
33,733.68
27,414.87
83.69
14.86
35759.64
40.83
15.40
23.00
61944.27
76194.03
EXPENDITURE













Interest Expended
24,155.07
21,254.46
18,689.52
17,516.31
13,976.90
72.82
13.65
17859.30
35.25
13.57
20.17
29026.74
34880.95
Employees Cost
3,376.01
3,114.97
2,601.35
2,376.98
2,080.17
62.29
8.38
2543.37
32.74
12.51
17.30
3960.10
4645.24
Other Expenses
6,724.81
6,088.77
5,299.42
4,537.26
3,926.93
71.25
10.45
4963.10
35.50
13.90
19.41
8030.30
9589.23
TOTAL OP EXPENDITURE
34,255.89
30,458.20
26,590.29
24,430.55
19,984.00
71.42
12.47
25365.76
35.05
13.51
19.72
41011.53
49099.46
EBITDA
16,103.61
13,385.44
11,456.09
9,303.13
7,430.87
116.71
20.31
10393.88
54.93
20.10
31.13
21116.76
27690.54
Depreciation
0
0
0
0
0
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
EBITA
16,103.61
13,385.44
11,456.09
9,303.13
7,430.87
116.71
20.31
10393.88
54.93
20.10
31.13
21116.76
27690.54
Provisions & Contingencies
3,709.86
2,328.61
2,107.46
1,750.44
1,143.03
224.56
59.32
1832.39
102.46
31.23
62.29
6020.59
9770.59
Exceptional Items
0
0
0
0
0
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
PBT
12,393.75
11,056.83
9,348.63
7,552.69
6,287.84
97.11
12.09
8561.50
44.76
17.72
24.71
15456.61
19276.40
Tax
4,170.09
3,699.01
3,130.96
2,373.26
2,045.63
103.85
12.74
2812.22
48.28
19.15
26.53
5276.58
6676.67
PAT
8,223.66
7,357.82
6,217.67
5,179.43
4,242.21
93.85
11.77
5749.28
43.04
17.06
23.83
10183.57
12610.58
Equity Share Capital
476.57
474.1
469.84
467.95
413.2
15.34
0.52
456.27
4.45
3.38
3.05
491.09
506.05
EPS
34.51
31.04
26.47
22.14
20.53
68.08
11.19
25.04
37.80
13.82
19.96
41.40
49.66
EPS (REPORTED)













Basic EPS
34.59
31.18
26.51
23.93
20.59
68.01
10.94
25.55
35.36
13.32
19.16
41.22
49.11
Diluted EPS
34.40
30.85
26.45
23.77
20.44
68.30
11.51
25.38
35.56
13.36
19.37
41.06
49.02
NPA Ratios :













i) Gross NPA
6088
4,110.19
3,146.41
2,393.42
1,806.30
237.04
48.12
2864.08
112.56
33.69
63.41
9948.24
16256.17
ii) Net NPA
2522
1,316.71
1,024.62
704.13
472.64
433.60
91.54
879.53
186.75
49.61
109.07
5272.82
11024.06
i) % of Gross NPA
1.67
1.34
1.22
1.06
0.94
77.66
24.63
1.14
46.49
15.22
26.44
2.11
2.67
ii) % of Net NPA
0.7
0.44
0.4
0.32
0.25
180.00
59.09
0.35
98.58
28.99
57.92
1.11
1.75
ROA(%)
1.72
1.83
1.78
1.7
1.68
2.38
-6.01
1.75
-1.57
0.67
-1.58
1.69
1.67
NII
16,832.97
14,224.14
11,951.64
9,666.26
8,017.75
109.95
18.34
10964.95
53.52
19.51
29.71
21834.75
28322.76
OPM(%)
31.98
30.53
30.11
27.58
27.11
17.97
4.74
28.83
10.91
4.26
6.10
33.93
36.00
NP(%)
16.33
16.78
16.34
15.35
15.47
5.53
-2.69
15.99
2.14
1.41
0.56
16.42
16.51







 AX

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