Axis Bank Q4 preview: Low provisioning likely, but asset quality may worsen

Axis Bank may report a subdued earning show for the March quarter of FY21 (Q4FY21) as analysts believe the lender may see single-digit loan growth, deterioration in asset quality, and slippages at 4.5 per cent of loan book. It may, nonetheless, report net profit compared during the quarter as against net loss posted in the year-ago period. The lender is scheduled to report its Q4 results on Tuesday, April 27.

Here’s what leading brokerages expect from Axis Bank’s Q4 results:

Edelweiss Securities

“Loan momentum will be tepid as demand remains weak and lenders are risk averse. Retail deposits growth, however, will likely be steady but traction on corporate deposits needs to be monitored,” opined the brokerage. Profits, pegged at Rs 1,722.8 crore, will be supported by limited Covid-19 provisioning in the quarter, it said.

ICICI Securities

ICICI Securities expects the lender’s loan book to grow 6 per cent on year to Rs 6.04 trillion from Rs 5.71 trillion reported at the end of Q4FY20 as “the bank is not chasing growth and is lending to right people at a right price”. Sequentially, the loan book would expand from Rs 5.82 trillion.

The deposits are expected to grow at 8 per cent YoY and 6 per cent QoQ to Rs 6.91 trillion from Rs 6.4 trillion and Rs 6.54 trillion, respectively.

“Credit cost, pegged at 2.4 per cent, is likely to be contained in Q4 as bank has pro-actively made higher provisions during 9MFY21. We expect it to carry forward contingency buffer to utilise only in extreme contingencies,” the brokerage said in its earnings preview report.

On the asset quality side, it expects run-rate of slippages to be lower in Q4FY21 (than Q3FY21). Moreover, BB and below-rated book has remained static over and will be key to watch out for, “though management draws comfort from granularity, diversification, positive sectoral developments, there by expecting to contain the risks of flow into BB and below,” it added.

Kotak Institutional Equities

The brokerage has the most optimistic net profit expectation of Rs 3,027.3 crore for the quarter under review compared with a net loss of Rs 1,387.8 crore. Sequentially, this translates to a 171 per cent jump from net profit of Rs 1,116.6 crore reported in Q3FY21.

The pre-tax profit, meanwhile, is pegged at Rs 4,090 crore as against a pre-tax loss of Rs 1,878.9 crore in Q4FY20 and pre-tax profit of Rs 1,491.2 crore.

That apart, the brokerage expects the lender’s provisions to decline 60.3 per cent YoY to Rs 2,859 crore from Rs 7,204 crore, and 42.3 per cent QoQ from Rs 4,952 crore. 

“While we expect slippages of Rs 6000 crore (4.5 per cent of loans) adjusted for slippages in the previous quarter, we expect commentary on collections to be strong and a positive outlook on earnings normalisation and asset quality for FY2022,” it said in an earnings preview report.

Motilal Oswal Financial Services

Analysts at the brokerage remain cautious on the bank’s profitability and project a PAT of Rs 1,630 crore on the back of an 8 per cent YoY rise in the operating profit of Rs 6,320 crore. The OP was Rs 5,851.1 crore in the corresponding quarter of the previous fiscal, and Rs 6,095.5 crore in the December quarter of the current fiscal.

On the asset quality front, MOFSL expects Axis Bank’s gross non-performing asset (GNPA) ratio to worsen from 3.4 per cent in Q3FY21 to 4.7 per cent in Q4FY21. The NNPA too may rise to 1.2 per cent from 0.7 per cent QoQ.

“We believe Axis Bank’s credit cost may remain high on a yearly basis but may moderate QoQ. Besides, slippages will remain a key monitorable given the rising Covid-19 cases.  Resultant restructuring/BB & below rated asset pool will also remain under watch,” it said.

Prabhudas Lilladher

The brokerage expects net interest income (NII) growth of 12 per cent YoY and 3 per cent QoQ to Rs 7,604.2 crore, up from Rs 6,807.7 crore (Q4FY20) and Rs 7,372.8 crore (Q3FY21). Net interest margin (NIM) may slip 10 bps YoY to 3.45 per cent. 

Slightly lower provisions, at Rs 3,810 crore, should help earnings with base quarter having high provision, it observed, and added that slippages may be at Rs 3,000 crore, adjusted to pro-forma.