There is enthusiasm among the investors of Axis Bank Ltd. The private sector lender exceeded expectations on core metrics such as net interest income and net interest margin (NIM) during the September quarter (Q2FY23). Shares climbed 9% on Friday to hit 52-week high 906 on NSE.
For the second quarter, Axis Bank’s performance can be described as a concentrated earnings distribution post-balance-sheet strengthening phase, said analysts at ICICI Securities Ltd. The much-awaited return on assets was recorded at 1.8% and return on equity at 18.5% in the quarter. They said.
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Following the second quarter results, several broking firms revised the earnings estimates of the bank upwards. That said, in the rising interest rate scenario, the stability of the NIM will be critical for banking investors. The bank’s management aims to maintain the NIM at current levels, but acknowledges that cost pressures are bound to increase as deposit growth picks up. Axis Bank’s NIM grew by 36 basis points sequentially to 3.96% in Q2, the highest in at least the last 10 quarters.
“The bank was able to improve its NIM, albeit on the back of sub-par deposit growth. A report by HDFC Securities on October 21 said that the stability of such metrics depends on increasing the pace of deposit raising, as the current debt-to-deposit ratio (H1FY23: 90%) appears to be volatile.
In Q2, the bank’s deposit growth was up 10% year-on-year, mainly due to muted growth in retail fixed deposits, which contribute the highest share in total deposits. Also, the cost of deposits increased to 3.8% in Q2 from 3.69% in Q1.
However, an improvement in long-term earnings prospects bodes well for the valuation multiples of the bank. “Axis Bank has checked a lot of boxes which are important for its re-rating story. Even after the current rally, we see an even more compelling opportunity both in absolute and relative terms given the prices at which many other banks are trading,” said India analyst, banking, financial services and insurance at BNP. , Shantanu Chakraborty said. Paribas.
So far in 2022, Axis Bank stock has gained nearly 33%, outperforming Nifty Bank, which is up 15%. Shares of ICICI Bank have gained 23 per cent. Analysts expect Axis Bank shares to bridge the valuation gap with peers on the back of better earnings. Meanwhile, Axis Bank has received Competition Commission of India’s approval for the amalgamation of Citi’s retail business and is expected to be closed by Q4FY23. Apart from the progress of the Citi deal, investors in Axis Bank stock should also keep an eye on Treasury loss trends.
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