Axis Bank turns volatile as it mulls over share sale
The shares of Axis Bank sank more than 2 per cent from the day’s high of Rs. 806.65 during Thursday’s trading session. This could be because the bank is mulling over raising funds to the tune of at least US$1.3 billion by means of a share sale to institutional investors.
Discussions have ensued with potential advisors about the fundraising. The bank is seeking approval from the Board of Directors for the sale as early as next month. This move is likely to enhance capital ratios while also expanding the bank’s lending capacity. The liquidity crunch in the sector has impaired the loan growth of many shadow banks. Axis Bank’s capital adequacy ratio tumbled to lower than its top peers in the month of March. Although the deal has not been finalised yet, it will serve to arrest the risk factors and enhance loan growth should it be passed.
The last couple of years have been very challenging for the company. However, even in the face of a tough macroeconomic environment, the bank showcased healthy growth. Net Interest Income (NII) rose 21 per cent YoY to Rs. 5,706 crore while operating profit rose 37 per cent YoY to Rs. 5,014 crore in Q4FY19. The domestic loan book grew 18 per cent YoY while the retail book increased 19 per cent YoY. Total Deposits rose 21 per cent YoY to Rs. 5,48,471 crore in FY19. The Provision Coverage ratio continued to increase and was reported at 77 per cent during the quarter.
Return on Assets (RoA) improved to 0.63 per cent in FY19 as against 0.04 per cent in FY18. Return on Equity (RoE) showcased enormous improvement as it rose to 8.09 per cent in FY19 from 0.53 per cent in FY18. The diluted EPS surged to Rs. 18.09 in FY19 from Rs. 1.12 in FY18. The asset quality metrics have continued to improve with non-performing assets reducing for the 4th quarter in a row. As such, GNPA and NNPA came in at 5.26 per cent and 2.06 per cent, respectively in Q4FY19, down from 5.75 per cent and 2.36 per cent, respectively in Q3FY19.
Despite the growth in bank loans, tight liquidity conditions have kept lending rates high and curbed the flow of financial resources. The bank has shifted its focus notably to the retail segment over the years. Thus, retail deposits have increased at a 6-year CAGR of 17 per cent. The retail business is now well-diversified with significant dispersion in the mix over time. Over the last few years, the cards business of the bank has proved very fruitful, with the market share more than doubling over the last 6 years.
Moving forward, the company’s growth and sustainability strategy revolves around risk normalisation by means of credit cost reduction, business mix optimisation through prudent portfolio choices and improvement in operating efficiency.
On Thursday, the shares of Axis Bank opened at Rs. 789.35 and hit a high and low of Rs. 806.65 and Rs. 782.00, respectively. The stock closed at Rs. 800.35, up 1.44 per cent.