Axis Bank Q2 Profit Beats Estimates and Increases 10% YoY: Should You Buy, Sell, or Hold?

On Thursday, Axis Bank’s stock price increased by more than 1% after the release of the bank’s impressive Q3 2023 financial results, which included a surprising increase in margin. For the quarter that ended in September, the private sector lender recorded a 10% YoY increase in its standalone net profit, which came in at Rs 5,863.56 crore as opposed to Rs 5,330 crore during the same time last year.

The difference between interest earned and interest spent, or net interest income, or NII, increased by 18.87 percent year over year to Rs 12,315 crore.

The asset quality of Axis Bank continued to improve throughout the reviewed quarter. As of September 30, the gross non-performing asset (GNPA) ratio decreased from 1.96 percent to 1.73 percent over the previous quarter. The percentage of net non-performing assets (NNPAs) was 0.36 percent, which was less than 0.41 percent the previous quarter.

For the reviewed quarter, operational profit increased by 12% year over year to Rs 8,632 crore.

The private sector lender’s capital adequacy ratio hit a record high of 93.9% after 20 quarters.

From 3.96 percent year-over-year and 4.1 percent QOQ, the net interest margin (NIM) increased to 4.11 percent.

For the second quarter, there were Rs 815 crore in provisions and contingencies, and Rs 1,010 crore in particular loan loss provisions. Throughout the quarter, the bank did not make use of any Covid-19 provisions. As of September 2023, the lender has cumulative provisions (standard and extra, other than NPA) of Rs 11,758 crore.

How Do Investors Need to Act?

“Axis Bank has shocked us with their NII performance. In contrast to the other banks, they have been able to defy the trend on the NII front by consistently growing their portfolio of high yielding loans. The QoQ slippage has decreased even in asset quality, which has led to a reduced credit cost this quarter. Ashutosh Mishra of Ashika Stock Broking said, “So these are the two main reasons where they have delivered very good set of numbers which are above street estimate.”

In Q2FY24, Axis Bank had a mixed bag of results, but its strong profits were fueled by consistent margins and more effective liquidity deployment throughout the quarter. The second consecutive quarter saw subdued deposit growth, despite a pick-up in credit growth, which raised the C/D ratio to 94%, according to Motilal Oswal Financial Services.

Since maintaining robust loan growth will depend on deposit accretion for the bank, the brokerage continues to keep a close eye on it. The quality of the assets is still good; recoveries are still solid and slippages are continuing to decline.

It revised its FY24 and FY25 profits predictions by 1.7% and 2.1%, respectively, and projected FY25 ROA and RoE of 1.9% and 16.6%. With a target price of Rs 1,150 per share, it maintained its “Buy” recommendation on the company.

With an unchanged target price of Rs 1,100 per share, Kotak Institutional Equities maintained its ‘Buy’ call rating on the bank, valuing it at ~2X book and ~13X March 2025E EPS for RoEs of ~16%.

Estimates for earnings are almost unchanged. The integration of Citi, particularly with regard to human resources, has proven to be less concerning. There is also less concern about the unrecognized financial expenses. The bank need to surpass its competitors in terms of fortifying its brand by FY2025. Over the next several quarters, we don’t anticipate Axis Bank exhibiting a notable outperformance. Our investment thesis is based on the bank’s likelihood of delivering steady loan growth and the assurance that it has a robust liabilities franchise. We believe that will contribute to keeping our present optimistic outlook,” the brokerage said.