Axis Bank Ltd.'s September-quarter results reinforced brokerages' positive outlook, with improving asset quality, lower credit costs and healthy loan growth supporting earnings despite continued pressure on margins. All five brokerages retained positive ratings, with Jefferies, Citi and Kotak Securities maintaining Buy, JPMorgan retaining Overweight and Bernstein maintaining Outperform. JPMorgan raised its target price to Rs 1,620 from Rs 1,590, while analysts pointed to the potential for margin and return on equity recovery as the impact of FCNR-B deposits eases.
The common thread across brokerage notes was improving asset quality and the prospect of a better earnings trajectory. Fresh slippages fell 14% sequentially, while credit costs declined to 0.72% from 0.92%. Jefferies expects better margins and lower credit costs to support return on equity next year, while Kotak Securities expects the earnings trajectory to improve from Q3. However, Bernstein flagged elevated operating expenses and weak net operating income trends, while Citi highlighted one-off costs weighing on pre-provision operating profit.
Net interest margin remains the key near-term monitorable. The reported NIM fell 10 basis points sequentially to 3.36%, including an 11-basis-point impact from FCNR-B deposits. Excluding this impact, NIM improved by one basis point to 3.47%. Management expects some improvement in margins in the second half, supported by changes in asset and product mix and measures to manage funding costs.
Axis Bank Q2 Highlights
Net interest income rose 11.83% year on year and 4.95% sequentially to Rs 15,371 crore.
Pre-provision operating profit increased 6.43% year on year to Rs 11,083 crore but declined 4.94% sequentially.
Net profit rose 37.59% year on year to Rs 7,003.28 crore but fell 1.56% sequentially.
Provisions declined 31% sequentially to Rs 1,694 crore from Rs 2,223 crore.
Net interest margin fell to 3.36% from 3.46% in the previous quarter.
NIM excluding the FCNR-B impact stood at 3.47%, up one basis point sequentially.
Gross non-performing assets declined to 1.16% from 1.28% sequentially.
Net non-performing assets fell to 0.35% from 0.39% sequentially.
Return on assets stood at 1.38%, down 13 basis points sequentially.
Fresh slippages declined 14% sequentially to Rs 4,762 crore from Rs 5,566 crore.
Credit cost fell to 0.72% from 0.92% sequentially.
Cost of funds rose three basis points sequentially to 5.07% from 5.04%.
READ | Axis Bank Q2 Results: Net Profit Rises 37%, Provisions Fall By Over 50% To Rs 1,694 Crore
Here's what brokerages are saying after Axis Bank announced Q2 results.
Jefferies
- Maintained 'Buy'; Target Price At Rs 1,700
- Said core performance was ahead of estimates, supported by better revenue and lower provisions.
- Viewed sequentially stable core NIMs as positive, although the FCNR-B drag was slightly higher than expected.
- Said asset quality continued to improve.
- Expects better NIMs and lower credit costs to support return on equity next year.
- Described the valuation as attractive and retained Axis Bank among its top picks.
Citi
- Maintained 'Buy'; Target Price At Rs 1,620
- Said headline NIM was distorted by the FCNR-B impact, while core margins remained stable.
- Noted that slippages and credit costs moderated sequentially.
- Said underlying asset quality remained resilient.
- Highlighted broad-based credit momentum across segments, with growth outpacing the industry.
- Flagged elevated operating expenses due to one-off costs as a drag on pre-provision operating profit.
READ | Axis Bank Battles 11 Bps NIM Drag From FCNR-B, Eyes Margin Uptick On Asset Mix
JPMorgan
- Maintained 'Overweight'; Target Price Raised To Rs 1,620 From Rs 1,590
- Said Q2 profit beat estimates, supported by net interest income and credit costs.
- Cited attractive valuations as a reason for its positive view.
- Said loan growth momentum remained healthy.
- Noted a marginal recovery in NIM excluding the FCNR-B impact.
- Highlighted improving asset quality.
Bernstein
- Maintained 'Outperform'; Target Price At Rs 1,600
- Said lower credit costs supported earnings-per-share growth despite weaker underlying trends.
- Noted that loan growth remained robust and corporate-led.
- Flagged a sharp increase in the loan-to-deposit ratio to around 95%, driven by strong borrowing growth.
- Said FCNR-B deposits drove NIM compression and net operating income trends remained weak.
- Viewed improving asset quality as a counterbalance to higher operating expenses.
Kotak Securities
- Maintained 'Buy'; Target Price At Rs 1,600
- Said a gradual recovery was taking shape.
- Attributed the earnings beat to lower credit costs.
- Expects the FCNR-B headwind to be temporary, with the earnings trajectory improving from Q3.
- Said the operating environment remained supportive of earnings growth.
- Cautioned that valuation upside could be constrained as the stock trades close to HDFC Bank's valuation multiple.
READ | Axis Bank Vs HDFC Bank Vs ICICI Bank Q2 Results: Who Led On Profit, Margins And Bad Loans?
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