Axis Bank Q3 Review: Healthy Core Income, Interest Margins Drove Profit Above Expectations

Axis Bank Ltd.'s third-quarter profit beat analysts' estimates, helped by buoyant core income, growth in fee income, and healthy margins, according to analysts.

However, overall credit growth was relatively moderate compared to its peers, analysts said.

The bank's net profit jumped 62% year-on-year to Rs 5,853 crore in the September-December quarter. Analysts polled by Bloomberg had estimated a net profit of Rs 5,342 crore for the third quarter. The bank's net interest income, or core income, also grew by 32% year-on-year and stood at Rs 11,460 crore.

Axis Bank's net interest margin during the quarter hit an all-time high of 4.26%, growing by 73 basis points year-on-year and 30 basis points sequentially.

Asset quality conditions for the lender also improved, with gross non-performing asset ratio falling by 12 basis points sequentially to 2.38%. Net NPA ratio, too, improved to 0.47% from 0.51%, as on Sept. 30.

Axis Bank's total advances grew by 15% year-on-year and stood at Rs 7.62 lakh crore. The bank's deposits grew by 10% year-on-year in the third quarter, with low-cost current account and savings account deposits also growing by 10%

The bank is also on track to complete its acquisition of Citibank's retail business in India by Q4 FY23.

Axis Bank's stock was trading at Rs 920.85 per share as of 10:15 AM on January 24, down 1.27% for the day. The benchmark Nifty Bank index, on the other hand, was up 0.16% for the day at 10:15 AM.

Here's what analysts had to say about Axis Bank's performance over the third quarter:

ICICI Securities

• Believe Axis Bank needs to accelerate its retail term deposit engine to support asset growth

• Acquisition of Citibank's retail business is not expected to be financially accretive in the immediate term due to integration costs

• Expect loan growth of 16-17% during FY23 and FY24

• Bank expects about 180 basis points of capital consumption for Citibank acquisition

• Maintain 'buy' rating with a target price of Rs 1,130 per share

Emkay Global

• Bank expects NIMs to stay structurally healthy

• Overall credit growth was relatively moderate as compared to peers, mainly slowed by the retail loan book

• Banks has also not reversed Covid related provisioning which remains at about 0.7% of the loans

• Maintain 'buy' rating with a target price of Rs 1,300 per share

Nirmal Bang

• Healthy margins and expansion in fee income lead the bank to beat profit expectations

• Credit growth was largely driven by domestic credit while overseas credit decline by 18% year-on-year

• Domestic advances were largely driven by loans to retail customers and small, medium sized enterprises

• Maintain 'buy' rating with a target price of Rs 1,132 per share

Motilal Oswal

• Axis Bank saw healthy business growth led by the corporate segment

• Post FY23, the bank's management aims to grow loans 500-600 basis points faster than the industry

• Axis Bank's restructured book also moderated further during Q3

• Maintain 'buy' rating with a target price of Rs 1,130 per share