Axis Bank Q3 Results: Profit Misses Estimates On Higher Staff Costs

Axis Bank Ltd.’s quarterly profit missed analysts’ estimates on the back of higher operating expenses, driven by an increase in staff costs.

Net profit rose 5 percent over the previous year to Rs 1,757 crore in the quarter ended December, according to its exchange filing. Analysts tracked by Bloomberg had pegged the profit at Rs 2,139 crore. The private lender had reported a loss of Rs 112 crore in the quarter ended September because of a one-time tax impact.

Pre-provisioning operating profit rose nearly 4 percent to Rs 5,742.69 crore—falling short of the Rs 6,016-crore estimate. According to the bank, in the October-December 2018 quarter, the bank had reported a large recovery owing to a steel account, which had boosted the operating profit. Adjusting for this one time impact, operating profit would have risen 22 percent year-on-year.

Net interest income, or the core income of a bank, rose 15.17 percent year-on-year to Rs 6,452.98 crore, compared with a Rs 6,348-crore estimate. Advances rose 15.79 percent year-on-year to Rs 5,50,137.7 crore.

The lender’s bad loan ratios remained steady over the quarter but slippages rose.

• Gross NPA ratio stood at 5 percent compared to 5.03 percent.
• Net NPA ratio stood at 2.09 percent versus 1.99 percent.
• Total slippages stood at Rs 6,214 crore in Q3 compared to Rs 4,983 crore in Q2.

About 81 percent of the slippages came from the BB and below rate book. Out of the total slippages, Rs 1,090 crore worth slippages were from the bank’s investment book, owing to its exposure to bonds issued by a housing finance company.

Loans rated BB and below now contribute to less than 3 percent of the bank’s corporate loan book. The bank last saw these levels six years ago, before it had started seeing an uptick in its bad loans. According to Jairam Sridharan, chief financial officer, the bank has not seen any major surprises in the accounts which have slipped into NPA category during the quarter.

“Nothing new has emerged to come up and worry us. There are some seasonal slippages from the agriculture loan portfolio. On the retail book, we are seeing a slight increase in slippages from the commercial vehicle financing business,” Sridharan said.

This is Sridharan’s last quarter as the Axis Bank CFO, as he will be leaving the bank to join Piramal Group in the new financial year.

Provisions rose 13.6 percent to Rs 3,470.92 crore year-on-year. The bank had set aside Rs 3,518.39 crore in the second quarter of the ongoing fiscal.

Higher Operating Expenses

One reason for the lower-than-expected profit was higher staff costs.

Staff expenses rose 14 percent year-on-year, showed the bank’s investor presentation. According to a Jan.7 report by Economic Times, the lender has seen close to 15,000 resignations amid a management churn. The bank said that it has already hired 28,000 employees this fiscal year and will add another 4000 in the fourth quarter.

Overall, operating expenses rose more than 10 percent over the previous quarter to Rs 4,496 crore.

“We are adding new staff at branches, at contact centres and our wholesale businesses. We have added a net of 12,800 new employees in the nine months of this financial year. The additions have been higher than what we had anticipated at the beginning of the year. While employee attrition rate has inched up for us, it is still lower than what our peers are operating at,” said Amitabh Chaudhry, MD and CEO, Axis Bank.

Other highlights:

• Advances rose 15.79 percent to Rs 5,50,137.7 crore year-on-year in the period.
• Deposits also grew 15.09 percent in the quarter-ended December to Rs 5,91,675.5 crore.
• Retail loan book grew 25 percent on a year-on-year basis.
• Domestic corporate book grew 16 percent on a year-on-year basis.
• Gross corporate slippages also saw an increase to Rs 3,891 crore from Rs 2,862 crore on a sequential basis.

The private sector lender’s small and medium enterprises loan book remained stable for the third quarter, as it has become cautious toward the segment. According to Chaudhry, there are three major reasons for this, the first being that working capital utilisation levels have dropped 8-10 percent for the bank’s SME borrowers. Another reason is that the bank has been consciously bringing down its supply chain financing exposure, owing to the stress in the auto sector.

“Moreover, we have to be generally more cautious about growing the SME book in the current macroeconomic climate. We are taking baby steps to ensure that the quality of the book is managed well,” the bank’s CEO said.

Axis Bank ended 1.08 percent lower ahead of the earnings announcement. The stock has gained 7.8 percent over the past 12 months, underperforming the Nifty Bank Index.