Specialist in Indian Banking and Economic Research

Hemindra Hazari

<p>Even though <a href="https://www.smartkarma.com/entities/axis-bank-ltd" target="_blank" data-smartkarma-citation="entities:768:1" rel="noopener">Axis Bank Ltd (AXSB IN)</a> reported an impressive growth in net profit, higher than that of its peers, the stock market penalised the bank, as the growth of its business, top line and profit before provisions was lower than that of its peers. The stock market traditionally favours both top and bottom line growth, and in Axis Bank’s case the market believed that the poor business growth is a symptom of a deeper problem in the bank’s business model.</p><p><strong>Some analysts have highlighted Axis Bank’s poor business indicators in the 2QFY2022 as compared with those of its peers, and their reading-between-the-lines is that it may be an undisclosed or even undiagnosed problem. It is also possible that Axis Bank 2QFY2022 was an off quarter, where the management took its eye off the ball, and that performance may rebound and match that of its peers in 2HFY2022. However, another, more ominous, explanation could be that staff morale may be the cause of the poor performance.</strong></p><p>This analyst was the first to <a href="https://hemindrahazari.com/2021/05/26/why-are-axis-banks-directors-mum-about-the-extraordinary-staff-churn/" target="_blank" rel="noopener">highlight</a> Axis Bank’s high and worsening attrition from FY2018 to FY2020, when it peaked at 36.8% for the overall bank and an alarming 69.2% for the sales category (this category has the maximum number of staff which sources new business). <strong>In FY2021, Axis Bank reported a trend reversal, a significant improvement in attrition to 23.8% (sales attrition at 49.7%); the improvement was also seen in other private sector banks. It is possible that the work-from-home regime in FY2021 resulted in less stressful daily physical meetings, and relaxation in achieving sales targets, on account of the lock-down. With 2QFY2022 gradually returning to normal, the pressures on the staff may have resumed to a point where attrition may have increased and morale plummeted, impacting the top line performance of Axis Bank.</strong></p><p><strong>Attrition can be a lead indicator for future performance</strong>, and analysts have been concerned with the steady senior level <a href="https://economictimes.indiatimes.com/markets/stocks/news/two-senior-executives-quit-axis-bank-for-piramal-nbfc/articleshow/75546095.cms" target="_blank" rel="noopener">exits</a> since Amitabh Chaudhry took charge as Chief Executive Officer on January 1, 2019. The latest <a href="https://www.bseindia.com/xml-data/corpfiling/AttachHis/299d20f1-8fa4-45d5-90f5-e4aed0484c6e.pdf" target="_blank" rel="noopener">resignation</a>  was of Rajesh Dahiya, executive director and in-charge of human resources since June 2010. <strong>But what was largely unreported was the plight of the bulk of the Axis Bank staff, which was ignored by analysts. This despite the fact that the bank had comprehensive disclosures on the issue which painted a sorry picture of human resource management since FY2018. Staff discontent may take some time to filter down to impacting overall performance, and we need more quarters to monitor performance to validate this hypothesis.</strong></p><p>The Axis Bank board of directors need to urgently enquire into the reasons for the poor business and revenue performance in 2QFY2022 and the stock market penalising the share price may provide the appropriate push to the board to investigate the matter and come out with remedial measures.</p>

Even though Axis Bank Ltd (AXSB IN) reported an impressive growth in net profit, higher than that of its peers, the stock market penalised the bank, as the growth of its business, top line and profit before provisions was lower than that of its peers. The stock market traditionally favours both top and bottom line growth, and in Axis Bank’s case the market believed that the poor business growth is a symptom of a deeper problem in the bank’s business model.Some analysts have highlighted Axis Bank’s poor business indicators in the 2QFY2022 as compared with those of its peers, and their reading-between-the-lines is that it may be an undisclosed or even undiagnosed problem. It is also possible that Axis Bank 2QFY2022 was an off quarter, where the management took its eye off the ball, and that performance may rebound and match that of its peers in 2HFY2022. However, another, more ominous, explanation could be that staff morale may be the cause of the poor performance.This analyst was the first to highlight Axis Bank’s high and worsening attrition from FY2018 to FY2020, when it peaked at 36.8% for the overall bank and an alarming 69.2% for the sales category (this category has the maximum number of staff which sources new business). In FY2021, Axis Bank reported a trend reversal, a significant improvement in attrition to 23.8% (sales attrition at 49.7%); the improvement was also seen in other private sector banks. It is possible that the work-from-home regime in FY2021 resulted in less stressful daily physical meetings, and relaxation in achieving sales targets, on account of the lock-down. With 2QFY2022 gradually returning to normal, the pressures on the staff may have resumed to a point where attrition may have increased and morale plummeted, impacting the top line performance of Axis Bank.Attrition can be a lead indicator for future performance, and analysts have been concerned with the steady senior level exits since Amitabh Chaudhry took charge as Chief Executive Officer on January 1, 2019. The latest resignation  was of Rajesh Dahiya, executive director and in-charge of human resources since June 2010. But what was largely unreported was the plight of the bulk of the Axis Bank staff, which was ignored by analysts. This despite the fact that the bank had comprehensive disclosures on the issue which painted a sorry picture of human resource management since FY2018. Staff discontent may take some time to filter down to impacting overall performance, and we need more quarters to monitor performance to validate this hypothesis.The Axis Bank board of directors need to urgently enquire into the reasons for the poor business and revenue performance in 2QFY2022 and the stock market penalising the share price may provide the appropriate push to the board to investigate the matter and come out with remedial measures.

Axis Bank: Toxic Workplaces Don’t Bring In More Business

External broker reports(aggregated public sources), Axis Direct

Axis Direct

External broker reports(aggregated public sources)

Axis Direct is the flagship brand under Axis Securities Limited, a subsidiary of Axis Bank in India. 

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Equity Bottom-Up

<p>We maintain a BUY rating on the stock with a revised target price of Rs 125 (1.3x FY23E ABV).</p><p>The key highlight of Federal Bank’s Q2FY22 performance was lower gross slippages, improved recoveries, the decline in SMA book (~4%), and manageable restructuring, indicating an improved credit cost outlook for the bank in the coming quarters. NII growth of 7.2%/4.3% YoY/QoQ was led by loan growth of 9.4%/3.6% YoY/QoQ and stable NIM at ~3.2%. While the bank’s overall non-interest income declined following the accounting norms prescribed by the RBI, its core fee income improved by 26% YoY. Subsequently, Provisions also declined by 53.9%/54.9% YoY/QoQ. This resulted in earnings growth of 49.6%/25.3% YoY/QoQ to Rs 4.6 Bn.</p><div class="content-highlight"><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></div>

We maintain a BUY rating on the stock with a revised target price of Rs 125 (1.3x FY23E ABV).The key highlight of Federal Bank’s Q2FY22 performance was lower gross slippages, improved recoveries, the decline in SMA book (~4%), and manageable restructuring, indicating an improved credit cost outlook for the bank in the coming quarters. NII growth of 7.2%/4.3% YoY/QoQ was led by loan growth of 9.4%/3.6% YoY/QoQ and stable NIM at ~3.2%. While the bank’s overall non-interest income declined following the accounting norms prescribed by the RBI, its core fee income improved by 26% YoY. Subsequently, Provisions also declined by 53.9%/54.9% YoY/QoQ. This resulted in earnings growth of 49.6%/25.3% YoY/QoQ to Rs 4.6 Bn.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Federal Bank: Asset Quality Strengthens; Maintain BUY

External broker reports(aggregated public sources), ICICI Securities Ltd

ICICI Securities Limited

<p>About the stock: Federal Bank is an old private sector bank based out of Kerala with around 1272 branches and 1874 ATM across various states.</p><ul><li>Strong liability franchisee with over 91% of total deposits being retail</li><li>Balanced loan mix with retail: corporate mix of 54:46</li></ul><div class="content-highlight"><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></div>

About the stock: Federal Bank is an old private sector bank based out of Kerala with around 1272 branches and 1874 ATM across various states.Strong liability franchisee with over 91% of total deposits being retailBalanced loan mix with retail: corporate mix of 54:46Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Federal Bank: Earnings in Line, Business Growth to Gain Momentum

External broker reports(aggregated public sources), Motilal Oswal Financial Services Limited

Motilal Oswal

<p>Restructured book rises to ~2.5% of loans; business momentum gains traction FB reported a strong 2QFY22, with PAT up by 50% YoY to ~INR4.6b (23% beat), led by lower provisions, which declined 55% QoQ. Core fee income saw a healthy recovery and grew by 51% QoQ, led by improving business activity. Margin improved to 3.2%. The bank witnessed a pick-up in business growth as gross advances grew by ~10% YoY, led by healthy traction in Business/Commercial Banking and the Agri book.</p><div class="content-highlight"><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></div>

Restructured book rises to ~2.5% of loans; business momentum gains traction FB reported a strong 2QFY22, with PAT up by 50% YoY to ~INR4.6b (23% beat), led by lower provisions, which declined 55% QoQ. Core fee income saw a healthy recovery and grew by 51% QoQ, led by improving business activity. Margin improved to 3.2%. The bank witnessed a pick-up in business growth as gross advances grew by ~10% YoY, led by healthy traction in Business/Commercial Banking and the Agri book.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

External broker reports(aggregated public sources), HDFC Securities

HDFC Securities

<p>LIC Housing Finance: LICHF disappointed, driven by elevated provisioning (1.1% of loans, annualised) and interest reversals (INR1.35bn). While asset quality improved across buckets, aggregate stressed pool (GS-II + GS-III + restructured) still remains elevated (12.6% vs. 13.6% in Jun'21), indicating that the path to normalisation is likely to be prolonged. The company shored up its GS-III provisions significantly to 43%, driving credit costs higher, although GS-II provisioning coverage continues to be subdued (0.2% PCR).</p>
<div class="content-highlight"><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></div>

LIC Housing Finance: LICHF disappointed, driven by elevated provisioning (1.1% of loans, annualised) and interest reversals (INR1.35bn). While asset quality improved across buckets, aggregate stressed pool (GS-II + GS-III + restructured) still remains elevated (12.6% vs. 13.6% in Jun'21), indicating that the path to normalisation is likely to be prolonged. The company shored up its GS-III provisions significantly to 43%, driving credit costs higher, although GS-II provisioning coverage continues to be subdued (0.2% PCR).
Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

HSIE Results Daily: Mphasis, Container Corporation, LIC Housing Finance and More

India

Federal Bank Limited operates branches and regional offices throughout India. The Bank offers a wide range of financial services, including merchant banking, international banking and foreign exchange, leasing facilities, money markets and agricultural advances. The Bank also provides lending for hi-tech agricultural and government sponsored schemes.

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Federal Bank (FB IN)

Axis Bank: Toxic Workplaces Don’t Bring In More Business

2QFY2022 may have been an aberration, but if staff have become unresponsive to the management’s directives to push business growth, Axis has a ...

Hemindra Hazari

Federal Bank: Asset Quality Strengthens; Maintain BUY

We maintain a BUY rating on the stock with a revised target price of Rs 125 (1.3x FY23E ABV). The key highlight of Federal Bank’s Q2FY22...

Axis Direct

Federal Bank: Earnings in Line, Business Growth to Gain Momentum

Federal Bank is an old private sector bank based out of Kerala with around 1272 branches and 1874 ATM across various states.

ICICI Securities Limited

Earnings outlook getting strengthened

Restructured book rises to ~2.5% of loans; business momentum gains traction FB reported a strong 2QFY22, with PAT up by 50% YoY to ~INR4.6b (23%...

Motilal Oswal

HSIE Results Daily: Mphasis, Container Corporation, LIC Housing Finance and More

LIC Housing Finance: LICHF disappointed, driven by elevated provisioning (1.1% of loans, annualised) and interest reversals (INR1.35bn). While...

HDFC Securities

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