Axis Bank Q3 Results Review - Earnings Inline; Remain Watchful On Growth, Net Interest Margins: Motilal Oswal

Motilal Oswal Report

Axis Bank Ltd. reported in-line profit after tax at Rs 60.7 billion (up 4% YoY/3.5% QoQ) in Q3 FY24, driven by healthy other income, which was partly offset by an increase in provisions due to alternative investment fund-related provisioning.

Net interest margins moderated 10 basis points QoQ to 4.01%. The management has suggested that funding costs will continue to inch up over the next two quarters.

Loan growth was healthy at 22% YoY/3.9% QoQ, while deposit growth was robust at 5% QoQ. The credit/deposit ratio moderated 110 bp QoQ to 92.8%.

Fresh slippages increased to Rs 37.2 billion, whereas healthy recoveries led to a decline in the gross non-performing asset ratio. The restructured book was under control at 0.18%.

We cut our FY25E earnings per share by ~8% considering an increase in costs and margin pressures. Moreover, with a high CD ratio being of ~93%, we estimate Axis Bank to deliver a 15.7% compound annual growth rate in loans over FY24-26E, slower than peers’.

Accordingly, we estimate FY25 return on asset/return on equity of 1.7%/17.4%. We downgrade our rating on Axis Bank to 'Neutral' with a revised target price of Rs 1,175 (1.8 times September-25E adjusted book value).

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