Private sector lender Axis Bank beat analysts' estimates to report a 70 percent year-on-year (YoY) rise in its standalone net profit at ₹5,330 crore for the September quarter (Q2FY23) led by a healthy increase in its net interest income (NII) and margins. Sequentially, the lender’s net profit rose 29 percent. Further, strong growth in the bottom line on the back of lower provisions also added to the rise.
Its NII rose 31 percent YoY and 10 percent QoQ to ₹10,360.26 crore in Q2FY23 while its net interest margin (NIM) came in at 3.96 percent, up 57 bps YoY and 36 bps QoQ.
“We have been guiding the market stating that we would like to reach a margin of 3.8 percent over the next couple of quarters. As you see our numbers, we have already crossed that number in a much shorter period in a significant manner,” Axis Bank MD-CEO Amitabh Chaudhry said in a post-earnings call.
“It gives us the cushion to continue to manage the NIMs as we move forward and ensure that we make it more sustainable as an enterprise rather than seeing volatility around it or it swinging back and forth too much,” he added.
Provisions for the quarter under review fell to ₹550 crore from ₹1,735 crore a year ago. The asset quality also improved further during the quarter. Its gross NPA ratio declined to 2.5 percent as on September 30 from 3.53 percent a year ago and 2.76 percent a quarter ago.
Meanwhile, its net NPA ratio in Q2 came in at 0.51 percent versus 1.08 percent a year ago and 0.64 percent a quarter ago.
Operating profit for the lender jumped 30 percent YoY to ₹7,716 crore in the September quarter. Retail loans grew 22 percent YoY, while small and medium enterprises (SME) loans jumped 28 percent this quarter.
“Over the past 12 months, we have made significant strides across every identified priority area. The core operating profits and margins have grown on the back of strong performance across business segments,” Chaudhry, further noted.
Stock price trend
Shares of Axis Bank surged 6.5 percent in intra-day deals to hit its 52-week high of ₹879.95 on Friday on the back of robust September quarter earnings.
The stock has outperformed its benchmark in the last 1 year, rising over 7 percent this time as against a 1.5 percent jump in Nifty Bank.
In 2022 YTD, the scrip has risen 29 percent and only 3 banks have gained more in this period - Bank of Baroda (76.5 percent), Federal Bank (62 percent), and IndusInd Bank (29.5 percent).
Just in October so far, the stock has advanced 19 percent after a 2.5 percent fall in September. In the 10 months of 2022, the stock has given positive returns in 5 and negative in 5.
It fell the most in June, down 7 percent followed by May, down 6 percent. Meanwhile, it jumped the most in October (so far) followed by July and January, up 14 percent in each.
Brokerages have remained bullish on the stock post its September quarter earnings on the back of improvement in asset quality, fall in provisions, strong bottom line and rise in NII and NIM.
Let's take a look at what they say:
Axis Bank delivered a stellar performance in Q2FY23, driven by sharp margin expansion and a significant decline in provisions along with improving trends in cost metrics, said the brokerage. Business growth recovered in the current quarter after a QoQ decline witnessed in Q1FY23, it added.
Asset quality continues to improve, aided by moderation in slippages and healthy recoveries, and upgrades. Restructured book moderated further while higher provisioning buffer provides comfort, further stated MOSL. Buoyed by an exemplary performance in Q2FY23, MOSL revised PAT for FY23E/24E by 17 percent/11 percent, respectively and expects the lender to deliver FY24E RoA/RoE of 1.8 percent/18.1 percent. It reiterates a Buy rating on the stock with a target price of ₹975, implying an upside of 18 percent.
The brokerage believes Axis Bank's transformation is in the right direction with sequential improvement in NIMs and expansion in return profile. Current core valuations of 1.6x FY24E BVPS are inexpensive and it expects the discount to larger private sector peers as Axis starts reporting strong operating performance on a more sustainable basis. It maintains a BUY call with a target of ₹1,000, indicating an upside of 21 percent.
"While deposit growth still remains elusive (though it is lower for the industry as a whole), strong NIMs (will be further augmented by Citi acquisition) gives Axis Bank adequate headroom to increase deposit rates to drive liabilities growth," said JM. Management indicated that the Citi acquisition is on right track and should be completed by end of FY23E/ early FY24E, it added.
"Q2FY23 marks the manifestation of sequentially higher NII and a 30 percent sequential increase in net profit. The bank’s reported slippages number were lower as GNPA and NNPA ratios narrowed from the previous quarter. Moreover, credit off-take was maintained, led by growth across segments. However, deposit growth remained lackluster at 10 percent YoY and 1 percent QoQ. The bank needs to mobilize deposits further to maintain a cash deposit ratio of below 90 percent. Therefore, deposit growth is likely to be key monitor-able in coming quarters," noted the brokerage.
The future outlook of asset quality is at a manageable level as the strong standard asset coverage is likely to absorb delinquencies from restructuring, further stated the brokerage. In view of an adequate covid buffer, glimpse of growth rejuvenation and a manageable restructuring pool, it recommends a BUY call with a target price of ₹1,005, indicating a 22 percent upside.
As per the brokerage, despite the relatively-moderate credit growth, Axis Bank reported strong core profit growth on the back of robust margin expansion and contained opex, albeit partly offset by a subdued treasury performance. Factoring in the better & faster than expected delivery on margins, coupled with contained opex, Emkay expects the bank to clock healthy core-profitability CAGR at 25 percent over FY23-25E.
It retains its long-term BUY rating on the stock and increased its target price to ₹1,110 from ₹1,020 earlier. The new target implies an upside of 34 percent given the potential steady improvement in FY23-25E RoA/RoE to 1.6-1.7 percent/16 percent (without factoring in any capital raise), respectively. That said, the bank will need to consistently deliver on growth/core profitability and maintain management stability for a re-rating, it added.
"After multiple soft quarters, Q2FY23 has been a very strong quarter with miraculously strong NIMs, healthy growth, controlled opex and strong RoAs at 1.8 percent. There is improvement across line items except for Retail Term deposits mobilization. Factoring in a large beat on Q2FY23 estimates, we have upgraded our FY23 PAT estimates by 9 percent though FY24 PAT is higher by 2 percent only as we need to see more consistency. The performance could also be influenced by potential capital raise though the bank sounded confident of capital raise only in next financial year," said the brokerage.
It maintained Buy on the stock and raised its target price to ₹950 from ₹900 earlier. The new target price indicates an upside of 15 percent.