Stay 'Neutral' On Axis Bank Maintains Motilal Oswal Post Mixed Q1 Results

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Motilal Oswal Report

Axis Bank Ltd. reported broadly in-line earnings in Q1 FY26 as lower opex and higher other income offset higher provisions. However, margins contracted sharply by 17bp QoQ due to repo rate cuts.

Asset quality deteriorated as slippages came in higher due to stringent classification of loans (technical impact), with gross non-performing asset/net non-performing asset ratios also increasing.

Advances growth was modest, while deposits declined 1% QoQ, leading to an increase in credit/deposit ratio to 91.2%. The bank has tweaked its classification of loan norms, which affected the slippages and credit cost.

Axis Bank intends to complete this exercise by Q2, which will keep near-term slippages and credit cost elevated. The residual loan re-pricing will also continue to put pressure on margins, though the bank has maintained its through-cycle margin guidance of ~3.8%.

We cut our earnings estimates for FY26/27 by 8.6%/5.7%, factoring in higher credit cost and margin pressure. We estimate FY27E RoA/RoE of 1.6%/14.6%. Retain Neutral with a target price of Rs 1,250 (1.6x FY27E adjusted book value + Rs 137 for subs).

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