Axis Bank shares slump 7% on Q1FY20 results, should you buy or sell stock?

Shares of private lender Axis Bank slumped 7 per cent after the bank posted Apr-Jun earnings. Axis Bank shares at 10:33 AM were seen trading at Rs 679.55 per share, nearly 4 per cent from the previous settlement. Axis Bank reported a 95 per cent rise in its Apr-Jun year-on-year as against Rs 701.09 crore in the same quarter of last year. However, despite the increase in quarterly profits, the lender’s asset quality witnessed marginal improvement. Axis Bank’s gross non-performing assets (NPAs) are almost steady at 5.25% of the loan book in Apr-Jun while its net NPAs stood at 2.04%. In view of Axis Bank’s quarterly results, ICICI Securities has maintained a BUY recommendation on its stock with a target price of Rs 865. Earlier, the brokerage firm had set a target price of Rs 931.

Axis Bank’s Q1FY20 results showed signs of the weak environment reflected in its slower growth and asset quality. While the overseas book acted as a drag, domestic loans grew 18% aided by a 22% growth in the retail book. Margins remained steady despite a fall in CASA mix to 41%. Fee growth was robust at 26%while expense ratios improved leading to operating profit growth of 19% YoY, excluding treasury profits. However, credit costs surprised negatively even as the bank made an effort to recognise and partly provide for potentially stressed assets following a fairly comprehensive approach of identification of the same, said ICICI Securities in a report. 

Axis Bank is relatively safe but a few chinks remain, said Investec Securities which has recommended a BUY on the stock with a target price of Rs 880 per share. Axis Bank does have exposure to some of the stressed corporates facing liquidity tightness, which could add to its nearly Rs140bn of watchlist. Axis’s exposure to SME/LAP segment remains high at 18% and has grown at 16% CAGR over the last few years. Like ICICI, unsecured credit grew at 40%+ CAGR while its overall exposure remains low at only 8% of the portfolio. Home loans which constitute around 19% of its advances could see some higher credit costs under extreme circumstances – hence we categorize this as a special situation.

Axis Bank reported a 13.1% y-o-y rise in its net interest income (NII) at Rs 5,844 crore. NII is the difference between interest earned and interest paid by a bank. down 1.82%.The bank’s gross slippages stood at Rs 4,798 crore for the quarter ended June, as compared with Rs 3,012 crore in Q4FY19 and Rs 4,337 crores in Q1FY19. Of this, corporate slippages were at Rs 2100 crore. Recoveries and upgrades from non-performing assets during the quarter stood at Rs 2,177 crore while write-offs were at Rs 3,005 crore. Recoveries and upgrades from non-performing assets during Apr-Jun were at Rs 2,177 crore while write-off stood at Rs 3,005 crore.

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