Axis Bank Q3 Results Review - Deposit Mobilsation Key Constraint To Growth, Margins: Systematix

Systematix Research Report

Axis Bank Ltd. reported Q3 FY24 earnings of Rs 60.7 billion (+4% QoQ and YoY). Excluding alternative investment fund provisions of Rs 1.8 billion, the earnings were a beat to estimates mainly led by higher other income and lower provisions. Key highlights were:

1. Net advances growth of 4% QoQ, 22% YoY (year-to-date annualised 14%) was led by 4-5% QoQ growth in retail and small and medium enterprise while corporate growth was subdued at 1.3% QoQ,

2. While deposit growth was strong at 5.2% QoQ, 18.5% YoY, it was led by high-cost bulk deposits which increased by 21% QoQ,

3. Net interest margin declined to 4.01% (-10 bps QoQ) as yield increase of 9 bps QoQ was more than offset by cost of fund increase of 18 bps QOQ,

4. Other income increased 10% qoq due to trading gains of Rs 3 billion in Q3 versus loss of 1 billion in Q2 FY24.

5. opex/assets ratio remained stable QOQ at 2.6%,

6. Gross slippage ratio increased to 1.66% vs 1.52% in Q FY24. However, net slippage ratio declined to 0.5% versus 0.6% in Q2 FY24 due to upgrade of a large corporate restructured account and some other recoveries,

7. CET- 1, including profit for 9M FY24, declined to 13.71% (versus 14.56% as of September 2023) due to 70 bps negative impact from regulatory changes partly offset by ~21 bps organic net capital accretion. Further, Axis Bank also has 43 bps additional cushion from Rs 50 billion of Covid provisions and does not foresee requirement for further capital raise.

8. Annualized return on asset at 1.8% and return on equity at 18.5% for 9M FY24.

We rollover forecasts to March-26 and maintain our 'Buy' rating with updated target price of Rs 1,270 (versus Rs 1,125) valuing the bank at two times March 2026 adjusted book value per share (earlier 1.85 times) taking into account the lower risk free rates.

While we continue to expect higher slippage ratio and credit costs over the forecast period (averaging 191 bps and 97 bps respectively), we adjust our near-term credit cost estimates (to 63 bps) to reflect the current provision run-rate.

With a credit-deposit ratio of 93%, strong deposit mobilisation would be key to meet management's stated guidance of advances growth of 400-600 bps above sector average for FY24 and FY25.

We lower our net interest margin forecasts for FY25-26E, to factor the impact of increased competition from banks targeting to reduce constant default rate via much reduced incremental CDRs.

The stock currently trades at FY25 price-to-earning of 13 times for FY24-26 earnings per share compound annual growth rate of 12%.

Click on the attachment to read the full report:

DISCLAIMER

This report is authored by an external party. NDTV Profit does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of NDTV Profit.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.