Axis Bank drops 3% despite 62% rise in Q3 profit; What should investors do now?

Bank’s NII – or the difference between interest earned and interest paid – soared 32.4 per cent 11,459.3 crore as per the regulatory filing. The bank’s asset quality also improved during the quarter under review with gross non-performing assets (NPAs) at 2.38 per cent versus 2.5 per cent in the year-ago quarter. Meanwhile, the net NPA ratio declined to 0.47 per cent, while the PCR improved to 81 per cent in the third quarter.

Its net interest margin (NIM) – a key measure of profitability for lenders – rose 30 bps sequentially to 4.26 per cent for the quarter ended December 2022.

Credit growth was healthy at 15 per cent YoY and 4.3 per cent QoQ, led by strong growth in the corporate and SME segments. The retail segment witnessed a muted trend. Deposit growth was modest with moderation in CASA and retail deposits and a strong sequential trend in non-retail deposits.

Slight increase in fresh slippages 3,810 crore, however, the asset quality ratio improved due to healthy recovery and upgradation.

Brokerages are largely positive on Axis Bank post its December quarter earnings due to improving asset quality, margin expansion, loan growth and multi-year high ROE/ROA.

Let us see what the brokerage has to say:

Motilal Oswal: Axis Bank delivered a steady performance in 3QFY23, driven by margin expansion, higher other income and improvement in cost metrics. Business growth was healthy, led by the corporate segment. Asset quality continued to improve, albeit with a slight increase in slippages, offset by healthy recoveries and upgrades. The brokerage said restructured book further eased, while higher provisioning buffer provided comfort.

“We lower our estimates slightly and expect the lender to deliver ROA/ROE of 1.9 per cent/17.3 per cent in FY2015. We maintain Buy with target price at 1,130, indicating a potential gain of 21 per cent,” it added.

Nirmal Bang: “Axis Bank reported strong numbers for Q3FY23 exceeding our estimates. ROA/ROE hit a multi-year high of 1.9 per cent/19 per cent. Profitability growth driven by margin expansion and higher than expected charges Earnings.NIM calculated for advances expanded by 66 bps YoY (27 bps QoQ) to 4.1 per cent due to change in asset mix, decline in RIDF investments and growth in domestic loan book … in asset quality Improvement was recorded, but gross bad loans and loan cost were impacted by non-recurring/one-time prudential items. Despite all stress indicators showing sequential improvement, the bank maintained cumulative provision coverage at 139 per cent,” the brokerage said.

The brokerage has raised its earnings estimates and expects the bank to report ROA of 1.8 percent and ROE of 16.6 percent by FY2025. It has maintained ‘Buy’ call on the stock with a target price (TP) of Rs. 1,132 (2x 1HFY25E ABVPS), showing a growth of over 21 percent.

Jefferies: “Axis Bank continued to deliver strong earnings, with profit of 62 per cent YoY ahead of estimates. Net interest margin (NIM) increased, driven by a combination of revaluation, and lower credit cost pushed RoA to 1.9 per cent. Core slippage remain low, and the bank has high coverage and buffer provisions. Deposit growth has lagged, like peers, and a pick-up in retail deposit growth will be important. We raise estimates by 7-13 per cent,” the global brokerage said.

Strong margin expansion also helped Axis Bank, which reported a 32 per cent year-on-year growth in NII as NIM expanded and assets grew by 10 per cent. The brokerage has ‘Buy’ call on the stock and raised its price target 1,170 (before 1,110).

yes security: The brokerage has ‘Buy’ call on the stock and raised its target price 1,300, meaning a possible increase of 40 per cent. The brokerage noted that it had placed the lender as its top pick on the space through May 2022 and believes its thesis remains intact after its December quarter earnings.

ICICI Securities: Going forward, looking at moderate balance sheet expansion (3 per cent QoQ / 10 per cent YoY), the brokerage believes Axis will need to expand its retail TD portfolio to support asset growth with credit-deposit ratio at 90 per cent Engine needs to be revved up. Further, sustained efforts are needed to bring down the ‘cost of assets’ below 2 per cent in the medium term. ICICI Securities pointed out that NIM is much higher than the steady-state guidance and growth in focused sectors, which will maintain the current earnings trajectory. The brokerage maintained ‘Buy’ call with the target price unchanged 1,130 (21 per cent upside) assigning 2.3x FY24E book.

stock price trend

Despite stellar results, the stock fell over 3 per cent to its day’s low in intra-day deals 903. The stock, however, has rallied over 30 per cent in the last 1 year, outperforming the Nifty Bank index.

Year to date in January, the stock is down 2.5 percent after a 3.5 percent jump in December.