Skies Clearer For Axis Bank Ahead! 15-20% Upside Seen In Stock As Citi Deal's Impact Less Worrying

Axis Bank has reported broadly healthy numbers in the September quarter of FY24, making brokerages optimistic about its share price. On Thursday, after Q2FY24 earnings, Axis Bank shares gained over 1.4% on BSE. Primarily, the performance in Q2 was driven by robust growth in the credit card business and disbursements which fetched higher yields for the bank. The majority of brokerages have recommended buying as the Citi deal's impact and financial cost woes are less worrying now.

At the time of writing, Axis Bank's share price traded at Rs 969.35 apiece, up by 1.5% on BSE. The stock was near its intraday high of Rs 974 apiece. Axis Bank's m-cap was nearly Rs 2.99 lakh crore.

During Q2FY24, Axis Bank reported a 10.01% YoY growth in net profit to Rs 5,863.56 crore, while net interest income (NII) came in at Rs 12,315 crore, registering a growth of 19% YoY and 3% QoQ. Net Interest Margin was up by 15 bps YoY and 1 bps QoQ to come at 4.11% in the quarter.

As of September 30, 2023, the bank's gross NPA stood at 1.73% in Q2FY24, declining by 77 bps YoY and 23 bps QoQ, while net NPA was at 0.36% down 15 bps YoY and 5 bps QoQ. In the quarter, the bank's gross slippage ratio (annualized) was at 1.49%, lower by 39 bps YoY, and the net slippage ratio (annualized) came in at 0.59%.

Total deposits grew 18% YoY and 1% QoQ on a period-end basis, while advances grew 23% YoY and 5% QoQ to Rs 8,97,347 crore by the end of Q2FY24.

Shreyansh Shah, Research Analyst, StoxBox said, "It would be an understatement to say that the Axis Bank reported decent numbers in Q2FY24. The bank came out with a solid set of numbers in the second quarter primarily due to a sharp growth in its credit card business and robust disbursements done in small and mid-segment advances where they could generate higher yields. This aided the bank in generating a marginally higher NIM in an environment where most peers are expected to feel the heat of NIM compression. Although some deterioration was seen in the bank's PPOP numbers, this was a one-off due to treasury loss regarding foreign exchange transactions. However, it was commendable on the bank's part that the bank contained slippages even though they have a substantial unsecured book."

Further, Shah added, "This further strengthens our confidence in the bank's credit profiling policy, and we reiterate that the bank's asset quality will remain stable in the medium term. Although RoA declined marginally this quarter, the degrowth can be attributable to the high cost of integration with CITI Bank."

In the forthcoming quarters, Shah believes Axis Bank will be able to perform well in this high-rate interest environment due to its focus on premiumisation, which it got from CITI's customers, and will help the bank to have healthy NIMs in the medium term.

Meanwhile, Kotak Institutional Equities report said, "We maintain BUY rating with FV of Rs1,100 (unchanged), valuing the bank at ~2X book and ~13X March 2025E EPS for RoEs of ~16%. Earnings estimates are largely unchanged. Citi's integration has turned out to be less worrying, especially the integration of human resources. The financial costs that are pending to be recognized are less worrying as well."

Kotak believes FY2025 should see the bank stepping up to its peers in strengthening its franchise.

It added, "We don't see a meaningful outperformance of Axis Bank coming through over the next few quarters. We are building our investment thesis that the bank is likely to deliver consistent loan growth and offer comfort that it has a strong liability franchise too. That, to us, should help in maintaining our current positive view. Expect an undifferentiated return in Axis Bank until we see a change in the underlying business performance."

While retaining its Buy recommendation, however, Motilal Oswal in its note said, "We remain watchful of deposit accretion for the bank as it will b critical to sustain healthy loan growth (targets 400-600bp higher growth vs. system over the medium term). Asset quality remains robust, with slippages declining further and recoveries remaining strong. We change our earnings estimates by - 1.7%/2.1% for FY24/FY25 and expect FY25 RoA/RoE of 1.9%/16.6%. We retain our BUY rating with a TP of Rs 1,150 (1.7x FY25E ABV)."

Giving yet another buy call on Axis Bank, JM Financial in its note said, "While AXSB's transformation is in the right direction with continued investment initiatives, meaningful improvement in liability franchise and sustainability of NIMs in combination with steady loan growth will drive the stock performance going ahead. Given the long-term measures undertaken to improve the liability franchise and portfolio granularity, we expect ROA/ ROE of 1.7%/ 17.6% in FY25E. We maintain BUY with SoTP-based TP of Rs 1,040 valuing the core bank at 1.8x FY25E BVPS."

Disclaimer:

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