Even if one tries to take comfort from the fact that Rs 3,000 crore were created towards "probable" Covid-related asset quality pressure, it doesn’t bode well as loan loss provisioning rose to Rs 4,204 crore in Q4FY20, from Rs 2,962 crore in Q3FY20. Also, when seen against the provisions made by HDFC Bank and IndusInd Bank towards Covid-related exigencies, Axis’ numbers are too high.
posted a loss of Rs 1,388 crore mainly on back of Rs 3,000 crore of Covid related provisions on moratorium, stress scenarios and overdue account, while also made over Rs 4,000 crore of provisions on legacy NPAs to significantly improve provision covergae ratio to 69 per cent, up 950bps QoQ. Main highlight of the commentary was a disclosure that 25 per cent of loans have been opted for moratorium on installments, which starts to reflect actual risk for banks and was not visible as yet. Lockdown extension and further opting of moratorium may add to risks of NPAs ahead," wrote analysts at Prabhudas Lilladher in their results review note. They have downgraded the stock from 'buy' to 'hold' with a reduced target price of Rs 475 (down from Rs 609).
Unlike peers, guidance from Amitabh Chaudhry, MD & CEO, was extremely cautious. “There have been a few hits and misses, and Covid will be a headwind for FY21,” said Chaudhry, while refraining from giving guidance on FY21.
The Mumbai-based lender on Tuesday reported a pre-tax loss of Rs 1,878.91 crore in the last quarter of this financial year (Q4FY20), against a pre-tax profit of Rs 2,303 crore in the year-ago quarter. Besides, the bank recorded a net loss of Rs 1,388 crore in Q4FY20, compared to a net profit of Rs 1,505 crore in the same period last financial year.
ALSO READ | Axis Bank reports Rs 1,878-crore pre-tax loss in Q4 on Covid-19 provisions
Analysts cut target price
Analysts at ICICI Securities maintained their 'buy' call on the stock but have cut the target price from Rs 821 to Rs 456.
"Axis Bank’s credit cost of 530bps reflects prudent approach of upfronting partial stress in this fiscal itself and cushioning earnings volatility in FY21/FY22E. deposits. The bank’s approach of building better rated corporate book (83 per cent corporate book rated A & above), treading cautiously in SME space and channelising retail unsecured to existing bank salaried clientele positions it relatively better. However, 25-28 per cent of customers (in value) seeking moratorium and >2% SMA accounts going into Covid-19 keeps us wary," they noted in their post-result report. Considering the current challenging environment, they have built in credit cost of 240bps/160bps, along with sub-10 per cent/16 per cent asset growth and marginal decline in margins leading to earnings cut of 44 per cent/21 per cent for FY21E/FY22E.
Emkay Global Financial Services, on the other hand, factoring in lower growth leading to continued higher corporate NPA formation and expected acceleration in retail/SME stress due to Covid-19’s impact. The brokerage expects higher LLP at 310/180bps and thus, have cut earnings by 35 per cent/7 per cent for FY21/FY22E. Accordingly, they have cut their target price to Rs 520 (valuing core bank at 1.4x FY22ABV + subs value of Rs22) and lower the rating to 'hold' from 'buy'.
"The proportion of loan under moratorium seems to be much higher than what some of the peer banks reported. This raises concern on delinquencies and likely implication on credit cost. The excess provision of Rs 60bn may turn out to be inadequate given the quantum of loan under moratorium. The uncertainties around asset quality may act as major overhang on the stock in near term. We cut our FY21/22 PAT estimate further by 36%/15% after initial cut of 26%/18% during initial days of lockdown. We expect ROA of 0.6%/1.1% in FY21/22 and ROE of 6%/11%. At CMP, stock trades at 1.6x/1.4x FY21/FY22 ABVPS of Rs 287/322," wrote analysts at Phillip Capital. They, too, have downgraded the stock to 'neutral' with a target price of Rs 500 valuing at 1.75x FY21.
As for Kotak Institutional Equities, target price has been revised to Rs 600 (from Rs 620) on the back of mixed asset quality.
"Asset quality showed a mixed performance with gross NPL ratio nearly flat qoq at 5% while net NPL declined 50 bps qoq at 1.6% of loans. Slippages were high at 3% of loans with a large part of it being driven by the corporate segment... It is quite challenging to forecast near term earnings as the situation on the ground is uncertain and policy/regulatory actions are still evolving. Our estimates appear reasonable given the excess provisions held currently. We maintain our BUY rating with FV revised to Rs600 (from Rs620 earlier) valuing the bank at 1.9X book and ~15X March 2022E EPS for RoEs of ~12%. An area of discomfort has been the persistently negative outcome on slippages from the corporate portfolio which appears to have stabilized for its key peers," the brokerage noted.