Axis Bank Ltd. may see its net interest margin improve, as the private sector lender focuses on high-yielding assets for the rest of the fiscal.
On Thursday, the lender reported a net profit of Rs 5,330 crore, up 70% year-on-year as provisions fell and net interest income rose 31%. Analysts polled by Bloomberg had estimated a net profit of Rs 4,445 crore for the second quarter. Axis Bank's NIM improved 36 basis points quarter-on-quarter to 3.96%.
Asset quality metrics improved, as the gross non-performing asset ratio fell 26 basis points sequentially, to 2.5%. Net NPA ratio, too, dropped to 0.51%, compared with 0.64% as of Sept. 30.
Here's what analysts expect from Axis Bank in the quarters ahead:
Morgan Stanley
Both revenue and cost surprised positively.
Key driver for sharp margin expansion was mix shift toward high-yielding assets. Shares of low-yielding rural infrastructure development fund bonds were also lower on a year-on-year basis.
Axis Bank also benefited from faster repricing of repo-linked loans compared to some of its peers.
Expect deposit growth to pick up by the second half of FY23, as the benefits of higher deposit rates play out.
Expect stock to re-rate amid higher margins and better operating leverage.
Revise target price to Rs 1,150 from Rs 1,000 earlier.
Jefferies
Key positive was rise in NIMs and NII, despite moderate loan growth of 18%.
Management expects to sustain NIMs at near current levels, aided by better asset mix and organic priority sector lending compliance.
Strengthening deposit franchises with a rising share of retail deposits will be key in supporting the bank's ability to participate in quality corporate credit demand in rising rates environment.
Bank may consider further capital raising which may be an overhang for valuation rerating.
Raised FY23 and FY24 earnings targets by 14% and 7%, respectively.
Raise price target to Rs 1,110 from Rs 1,010 per share.
Motilal Oswal
Axis Bank delivered a stellar performance in Q2, driven by sharp margin expansion and a significant decline in provisions along with improving trends in cost metrics.
Asset quality continues to improve, aided by moderation in slippages and healthy recoveries, and upgrades.
Restructured book moderated further while higher provisioning buffer provides comfort.
Operation expenditure grew 14% year-on-year but was largely flat quarter-on-quarter as past investments made in the business started to yield benefits.
Revise net profit estimate for FY23 and FY24 by 17% and 11%, respectively.
Estimate Axis Bank to deliver return on assets and return on equity of 1.8% and 18.1% respectively in FY24.
Reiterate buy with a target price of Rs 975 per share.
Emkay Global
Despite the relatively-moderate credit growth, Axis Bank reported strong core profit growth on the back of robust margin expansion and contained operational expenditure.
This, coupled with continued lower loan loss provisions, led to the 24% beat on net profit.
Management aims to sustain margins at current levels, but reckons that cost pressure will increase as deposit growth accelerates.
Expect the bank to clock healthy core-profitability compounded annual growth of 25% over FY23-25.
Revise our earnings estimates by 15%, 11% and 6% for FY23, FY24 and FY25, respectively.
The bank will need to consistently deliver on growth, core profitability, and maintain management stability for a re-rating.
Retain long-term buy rating with a target price of Rs 1,110 per share, compared to Rs 1,020 earlier.
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