Axis Bank Q3 Results Review: Operating Costs, Net Interest Margin To Be Key Monitorables
'Higher retail fee growth owing to the higher spending during festive quarter helped offset the higher opex growth, helping the bank maintain its return on assets at 1.8%,' Bernstein said in a note.
Axis Bank Ltd.'s third-quarter net profit rose nearly 4% despite being weighed by higher operating expenses.
As the private lender has acquired Citigroup India's consumer business, the bank continues to invest in IT infrastructure and digital journeys with expansion of card business and branches.
The opex-to-assets ratio will improve further as Citi integration runs off in April-September and low cost intensive corporate growth picks up, said ICICI Securities.
The opex-to-assets ratio improved marginally to 2.56% in Q3, from 2.6% in the previous quarter.
"Higher retail fee growth owing to the higher spending during festive quarter helped offset the higher opex growth, helping the bank maintain its return on assets at 1.8%," Bernstein said in a note.
Retail fee now contributes 72% of overall fee.
Analysts drew comfort from the fact that Axis Bank's net interest margin stayed above 4%, even after a compression of 10 basis points. This was despite a sequential increase in cost of deposits.
Going forward, operating expenses and net interest margin will be a key focus area.
Here are the brokerages view on Axis Bank's Q3 Results:
Bernstein Research
Strong growth in other income and continued lower credit costs helped the bank maintain a return on earnings above 18%.
The impact of deposit repricing was limited by the rise in the share of retail portfolios and the continued decline in the share of low-yielding rural infrastructure development fund investments.
Deposit growth was led by a strong print in term deposits, with CASA deposits hard to come by.
Maintain an 'outperform' rating with a target price of Rs 1,250 apiece.
HSBC Global Research
Healthy loan growth, in-line NIM compression, and low credit costs were positives.
Cut EPS estimates to 0.3–1.5% in FY24–FY26, reflecting minor adjustments to growth, NIM, and opex estimates.
Sharp compression in NIM as the cost of funds catches up and an increase in cost ratios with additional spending on branches and employees are key risks.
Controlled slippages and large one-off recoveries led to muted credit costs, even after providing a one-time charge for its AIF exposure.
Retain the 'buy' rating with a target price of Rs 1,404.
Citi Research
Deposit growth outpaced peers, dominated by non-retail term deposits.
Tone-down advances growth estimates, and NIMs are expected to moderate further.
Benign credit costs and fee accretion to support return on assets
Revised earnings by 2% for FY24/FY25/FY26
Maintain the 'buy' rating, with a target price of Rs 1,370 from Rs 1,380 earlier.
Jefferies
Credit costs stayed low and bank utilised some buffers into opex
Can deliver 16-18% growth in loans, improve deposit profile and sustain ROE of 18%
Tweak estimates and see 17% CAGR in profit over FY24-26
Maintain 'buy' with price target of Rs 1,380
ICICI Securities
See 16% loan CAGR for FY24-FY26, though the bank needs to accelerate its efforts on retail deposits mobilisation.
Expect NIM to compress 10 bps year-on-year for FY25 and FY26
See broadly stable return on assets at 1.65% for FY25 and FY26, led by better fee and easing pressure on opex
Risk is slower deposit growth constraining loan growth.
Maintain 'buy' with a revised target price of Rs 1,280.
