Axis Bank shares will be in focus in today's trade after the private lender delivered a mixed bag of performance in the second quarter of this fiscal (Q2FY24), with healthy earnings driven by steady margins and sharper liquidity deployment during the quarter. A number of brokerages have reiterated their bullish recommendations on the stock that has the potential to deliver 36% returns given the attractive valuations.
Shares of Axis Bank opened a percent higher to trade at Rs 967.15 on NSE today. The scrip has risen about 3% in the year 2023 so far. The stock tested its record highs on September 20, 2023, at Rs 1,047.50 apiece. However, the lender is about 5.68% up in the last year.
Axis Bank's net profit grew 10% year-on-year (YoY) to Rs 5,864 crore in the September quarter, driven by healthy net interest income (NII) growth at 19% YoY and 3% quarter-on-quarter (QoQ) and contained provisions, despite high opex.
The bank claims the higher opex included a one-off cost towards re-valuation of card rewards and IT and infra expenses that led to cost-to-assets (C/A) of 2.4%. That said, the bank aspires for 2% C/A in the medium term which looks challenging, given the retail portfolio and infra build-up, said Emkay Global.
"Axis Bank reported mixed performance in Q2FY24 where in pre-provision operating profit (PPOP) was marginally below estimates led by higher opex growth despite higher than expected NII growth while earnings were in line driven by lower credit cost offsetting lower PPoP," said Rahul Malani, Deputy VP - Research at Sharekhan by BNP Paribas.
Deposit growth remains muted
Loan growth was healthy at 23% YoY and 4.5% QoQ, while deposit growth was muted, over 1% in the first half of this fiscal.
Though credit growth has been healthy at 18% YoY and 5% QoQ, adjusted for the Citi portfolio acquisition in Q2, deposit growth has been slow, at 18% YoY and 1% QoQ, which the bank claims is been due to balance-sheet management, reflecting in stable margins.
The bank's asset quality remains robust, with slippages declining further and recoveries remaining strong.
"We fine-tune FY24-26E earnings, factoring in the frontloading of opex, but expect the bank to log a healthy return on assets (ROA) of 1.8% in FY24-26E, albeit lower than peers (≥2%)," the brokerage said.
Emkay believes the lender will need to shore up its capital buffer at some point ahead, if not sooner. At the current market price, valuations remain reasonable versus peers, the brokerage said while increasing its target on the stock to Rs 1,300 per share from Rs 1,260 earlier.
Motilal Oswal said it remains watchful of deposit accretion for the bank as it will be critical to sustain healthy loan growth (targets 400-600 basis points higher growth versus system over the medium term).
Global brokerage Jefferies has a 'Buy' rating on the Axis Bank stock, with a target price of Rs 1,250. Jefferies said the second-quarter profit was in line with estimates. The key positive, as per the brokerage, was that core NIMs were down just 1 basis point QoQ to 4.1%.
The OPEX growth of 34% was a drag on profit and includes one-time adjustment for card rewards, Jefferies said. "Still bank delivered on 18% return on equity (RoE) and this can be anchored in the future as well."
According to CLSA, the Q2 NIM performance was better than peers but deposit traction needs to pick up. Key positives include a stable NIM QoQ, compared to a 25-35 bps decline for ICICI Bank and Kotak Bank.
Lower net slippages in retail and corporate loans and accretion to tier-I capital were also among the key positives. Key negatives include sluggish deposit traction, especially CASA and higher ‘other’ opex, CLSA said.
First Published: Oct 26, 2023 9:43 AM IST
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