Axis Bank falls 5% as Q3 business growth soars, but margin slips. Should you buy?

"We could also see improvement in the deposit profile that would sustain the return on equity (RoE) of 18%. We see a compounded annual growth rate (CAGR) of 17% over FY24-26. At valuations of 1.8 times FY25 adjusted PB/10 times PE are attractive and 20% discount to ICICI Bank," Jefferies said.

Morgan Stanley is 'Overweight' on Axis Bank, with a target price of ₹1,450 per share. The broking firm said that good numbers; trimming growth estimates given tight liquidity conditions. The lender delivered a strong improvement in its franchise, Morgan Stanley said.

HSBC analysts have a price target of ₹1,404 a share, suggesting a further upside potential from the current market levels. The foreign brokerage said that healthy loan growth, in-line NIM compression, and low credit costs were positives.

HSBC has slashed its FY24-26 earnings per share (EPS) estimates by 0.3-1.5%. "The EPS cut reflects minor adjustments to growth, NIM, and operating expenditure estimates. We expect FY24-26 EPS CAGR of 14% for Axis Bank," the brokerage said in its post-results review.

Domestic brokerage Nuvama also has a 'Buy' on the counter mainly based on valuation though it sees near-term earnings vulnerability.

According to Nuvama, Axis Bank CEO Amitabh Chaudhry said that deposit challenges would persist through FY25. "In Q3FY24, 65% of incremental deposits were bulk. Given a higher share of bulk and deposit challenges,

we find Axis more vulnerable to loan growth and NIM compared to ICICI, Kotak and others. Opex ex one-offs continue to run high at 2.5%-plus among the highest in the private sector while CET1 though self-funded remains among the lowest. Credit cost also appears to have bottomed."

Motilal Oswal said that it will keep an eye on the lender's near-term growth as it believes that an elevated credit-deposit ratio will constrain credit growth, while continued re-pricing of deposits will likely exert pressure on margins in the coming quarters.

Axis Bank has also suggested that it will continue to invest in the business, taking advantage of controlled credit costs. "This will keep cost/asset ratios elevated, much higher than the earlier guidance of reaching 2% cost/assets by the end of FY25. We cut our FY25 EPS estimates by 8% considering an increase in costs and margin pressures," Motilal said while downgrading its rating to 'Neutral' with a revised target of ₹1,175.

The leading private lender reported in-line net profit at ₹6,071 crore, up 4% year-on-year and 3.5% QoQ in the quarter, driven by healthy other income, which was partly offset by an increase in provisions due to (alternative investment fund) AIF-related provisioning.

Additionally, loan growth was healthy at 22% YoY and 3.9% sequentially, while deposit growth was robust at 5% QoQ, which is best among private peers like ICICI Bank, Kotak Bank, Federal Bank, IndusInd Bank. The bank's annualised credit cost was at a three-month low of 0.3% as against 0.45% QoQ.

Axis Bank's operating profit declined on-year for the first time in six quarters. The core operating profit growth is weaker than peers, and flat on a YoY basis. Axis Bank is the only lender to not see core operating profit growth sequentially.

The bank's net interest margins (NIMs) moderated to 4.01%. The management has suggested that funding costs will continue to inch up over the next two quarters. The credit-deposit ratio moderated sequentially to 92.8%.

Axis Bank's fresh slippages increased to ₹3,720 crore, whereas healthy recoveries led to a decline in the gross non-performing asset (GNPA) ratio. The restructured book was under control at 0.18%.