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Motilal Oswal Report
Axis Bank Ltd. reported an earnings beat as tax reversals and treasury gains offset higher provisions. However, margin contracted 6 basis point QoQ. Asset quality was stable as slippages declined sequentially, while higher write-offs drove improvement in gross non-performing asset ratios.
Loan growth was muted, while deposits grew 14% YoY (~2% in H1 FY25), leading to a credit/deposit ratio of 92%. Average liquidity coverage ratio declined to 115% due to an increase in outflow rates. We will keenly monitor near-term growth as the C/D ratio is still high (the bank aims to maintain the current CD ratio), which will constrain credit growth, while continued re-pricing of deposits may keep margins in check.
We broadly maintain our earnings estimates and expect FY26E RoA/RoE of 1.7%/15.9%.
We had earlier downgraded the stock in Jan'24 at Rs 1,090; we now believe that while the current valuation looks comforting after a significant underperformance, the watchful stance on several key metrics (deposit growth, credit cost, LCR and CD ratio) will limit near-term stock performance.
Reiterate Neutral with a target price of Rs 1,225 (1.7 times FY26E adjusted book value).
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