Analysts will keenly watch Axis Bank Ltd.'s deposit and credit growth in the upcoming quarters, and expect its return on equity and return on assets to improve by FY25.
Net profit for the private lender rose 91% year-on-year to Rs 4,125 crore, as provisions fell 89%. its net interest income rose 21% even as the loan book rose 14% from a year ago.
Growth in advances was slower than the 15% year-on-year growth in the January-March quarter.
While retail and small and medium enterprises rose 25% and 27%, respectively, corporate loans fell 5% from a year ago.
The lender's gross non-performing asset ratio stood at 2.76%, six basis points lower sequentially. It reported fresh slippages worth Rs 3,684 crore during the first quarter, compared with Rs 3,981 crore in January-March. Upgrades and recoveries stood at Rs 2,957 crore, while write-offs were at Rs 1,512 crore.
Of the 50 analysts tracking the lender, 45 recommend a 'buy' and five suggest a 'hold', according to Bloomberg data. The 12-month consensus price target implies a 29% upside.
Here's what analysts made of Axis Bank's Q1 FY23 results.
Morgan Stanley
Loan book declined 1% quarter-on-quarter, that said, growth in the bank's focus segments such as retail, small and medium enterprises, mid-corporates, remained strong.
Expects deposit growth to pick up by second half of FY23 as the benefits of higher deposit rates play out.
Acceleration in retail deposit growth will be key.
Asset quality is robust, with stressed loans at 4.8% of loans.
Estimated return on equity of 16% by FY25 remains on track.
Remains 'overweight' with a target of Rs 910 a share.
Jefferies
Profit growth was ahead of estimates, supported by lower credit cost and better top line.
Lower slippages helped keep credit costs marginal, which the bank is utilising in pushing up investments in expansion and IT.
A rise in share of retail deposits will be key to support the bank's ability to participate in quality corporate credit demand in a rising interest rate scenario.
This is where Axis Bank lags behind peers and slower loan growth could help in improving funding mix.
There is scope to bridge the valuation gap with ICICI Bank from the current 35-40% gap.
Maintains 'buy', but cuts target price to Rs 1,010 a share, from Rs 1,050 earlier.
Emkay Global
Growth slipped, but core profitability has improved after a gap.
Healthy growth in NII and fees, coupled with lower provisioning helped net profit beat estimates, despite higher operational expenditure.
Bank has guided for medium-term cost-to-asset ratio of 2%, driven by better productivity.
Axis has retained net interest margin guidance at 3.7-3.8% for the next 8-10 quarters on better portfolio mix and run-down in rural infrastructure development bonds.
Expects the bank's RoA and RoE to improve to 1.6% and 16% respectively by FY25 - up from 1.2% and 12% in FY22.
Citi acquisition would require shoring up of capital levels and could lead to dilution in RoE.
Maintains long-term 'buy' rating with a target price of Rs 1,020 per share.
IIFL Securities
The quarter was characterised by moderate loan and deposit performance, sequential margin expansion, healthy fee income traction and improvement in asset quality.
Lower loan growth estimates to a 18% compounded annual growth rate over FY22-25, from 20% earlier, to factor-in lower growth in FY23.
Increases NIM estimates and expect NIM be relatively stable at 3.6% going forward.
Higher operational expenditure and moderate loan growth remain as concerns in a near term.
Expects Axis Bank to deliver RoA and RoE of 1.5 and 15.6%, respectively, by FY24.
Estimates factor in Citi acquisition and a Rs 12,500 crore charge to net worth in FY24.
Maintains 'buy' with a target price of Rs 900 apiece.
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