Axis Bank's net profit for the October-December quarter of FY23 (Q3FY23) surged 62 percent year-on-year (YoY), beating analysts' estimates, to ₹5,853 crore on the back of strong loan growth and high net interest income (NII). The lender reported a profit of ₹3,614 in the same quarter last year.
The bank's NII — or the difference between interest earned and interest paid — rose 32.4 percent to ₹11,459.3 crore, as per the regulatory filing. Asset quality of the bank also improved with gross non-performing assets (NPAs) during the quarter under review at 2.38 percent versus 2.5 percent in the year-ago quarter. Meanwhile, the net NPA ratio declined to 0.47 percent, while PCR improved to 81 percent in Q3.
Its net interest margin (NIM) — a key measure of profitability for lenders — further improved by 30 bps sequentially to 4.26 percent for the quarter ended December 2022.
Loan growth was healthy at 15 percent YoY and 4.3 percent QoQ, led by strong growth in the corporate and SME segments. The retail segment witnessed muted trends. Deposit growth was modest, with moderation in CASA and retail deposits and strong sequential trends in non-retail deposits.
Fresh slippages increased slightly to ₹3,810 crore, however, healthy recoveries and upgrades led to an improvement in asset quality ratios.
Brokerages are largely positive on Axis Bank post its December quarter earnings on the back of improved asset quality, margin expansion, loan growth and RoE/RoA at multi-year highs.
Let's see what brokerages have to say:
Motilal Oswal: Axis Bank delivered a stable performance in 3QFY23, driven by margin expansion, high other income and improving cost metrics. Business growth was healthy, led by the corporate segment. Asset quality continued to improve, even as slippages increased marginally, compensated by healthy recoveries and upgrades. The restructured book moderated further, while a higher provisioning buffer provided comfort, said the brokerage.
“We tweak our estimates slightly and expect the lender to deliver RoA/RoE of 1.9 percent/17.3 percent in FY25. We maintain Buy with a target price at ₹1,130, indicating a potential upside of 21 percent,” it added.
Nirmal Bang: "Axis Bank reported strong numbers for Q3FY23 ahead of our estimates. RoA/RoE came in at a multi-year high of 1.9 percent/19 percent. Profitability growth was led by margin expansion and higher-than-expected fee income. Calculated NIM expanded by 66bps YoY (27bps QoQ) to 4.1 percent on the back of a change in asset mix towards advances, declines in RIDF investments and an increase in the domestic loan book… Asset quality registered improvement, but gross delinquencies and credit costs were impacted by non-recurring/one-time prudent items. Despite all the stress indicators showing a sequential improvement, the bank sustained cumulative provisions coverage at 139 percent," stated the brokerage.
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 FY25E. It has maintained a ‘Buy’ call on the stock with a target price (TP) of ₹1,132 (2x 1HFY25E ABVPS), implying an upside of over 21 percent.
Jefferies: "Axis Bank continued to deliver strong earnings, with profit rising 62 percent YoY, ahead of estimates. The combination of repricing led a rise in net interest margin (NIMs), and low credit costs lifted ROA to 1.9 percent. Core slippages remain low, and the bank has high coverage and buffer provisions. Deposit growth has lagged, like peers, and a pickup in retail deposit growth will be key. We raise estimates by 7-13 percent," said the global brokerage.
Strong margin expansion helped Axis Bank as well, driving 32 percent YoY growth in NII, as NIMs expanded and added to asset growth of 10 percent YoY. The brokerage has a ‘Buy’ call on the stock and has raised its price target to ₹1,170 (earlier ₹1,110).
Yes Securities: The brokerage has a ‘Buy’ call on the stock and has increased its target price to ₹1,300, implying a potential upside of 40 percent. The brokerage noted that it had placed the lender as its top pick in the space in May 2022 and believes its thesis remains intact post the December quarter earnings.
ICICI Securities: Going forward, given moderate balance sheet expansion (3 percent QoQ / 10 percent YoY), the brokerage believes Axis needs to accelerate its retail TD engine to support asset growth with the credit-deposit ratio now at 90 percent. Also, sustained efforts are needed to drive ‘cost to assets’ below 2 percent in the medium term, it noted. NIMs settling much higher than the steady-state guidance and growth in focused segments would sustain the current earnings trajectory, ICICI Securities pointed out. The brokerage maintained a ‘Buy’ call with an unchanged target price of ₹1,130 (21 percent upside) assigning 2.3x FY24E book.
Stock price trend
Despite stellar results, the stock shed over 3 percent in intra-day deals to its day's low of ₹903. The stock, however, has risen over 30 percent in the past 1 year, outperforming the Nifty Bank index.
Just in January till date, the stock has lost 2.5 percent after a 3.5 percent jump in December.