News Mania Desk/Agnibeena Ghosh/25th July 2024
Axis Bank’s share price took a significant hit in early trading on Thursday, falling by over 5% following the release of its earnings report for the first quarter of FY25. On the Bombay Stock Exchange (BSE), Axis Bank shares plunged as much as 5.76%, reaching ₹1,168.25 each.
For the quarter ending June 2024, Axis Bank reported a net profit of ₹6,035 crore, a notable increase from ₹3,452 crore in the same period the previous fiscal year. However, this figure marked a decline of 15% compared to the ₹7,130 crore net profit recorded in the preceding March quarter. The bank’s net interest income (NII) saw an increase, rising to ₹13,448 crore from ₹11,959 crore year-on-year (YoY). Despite this growth, the net interest margin (NIM) slightly eased to 4.05% from 4.10% in the previous year.
The bank’s asset quality exhibited some deterioration, with the gross non-performing assets (NPA) ratio climbing 11 basis points to 1.54%. Additionally, the net NPA ratio increased by 3 basis points to 0.34% sequentially. Axis Bank’s management has indicated that the rise in NPA formation was an isolated incident and expects it to trend downwards. The management also anticipates that moderating costs, particularly those related to the Citi integration, will help mitigate any potential pressure on margins and loan loss provisions (LLP).
Anand Dama, Senior Research Analyst at Emkay Global Financial Services, noted that Axis Bank’s earnings for the quarter fell short of expectations by 10%. He attributed the lower profit after tax (PAT) and return on assets (ROA) to higher LLPs, driven by increased NPAs and slower recoveries. Despite a modest credit growth, Axis Bank managed to maintain stable NIMs at 4.1% due to improved loan-to-deposit ratio (LDR), a rising share of unsecured loans, and a one-off interest on IT refunds.
In light of the quarterly miss and growing concerns over unsecured loans and LLPs, Emkay Global has revised its earnings estimates for FY25-27 downward by approximately 3%. Nevertheless, the firm projects a healthy return on assets (RoA) of around 1.8%. With a Common Equity Tier 1 (CET 1) ratio falling below 15%, Axis Bank is planning to raise equity capital of about ₹20,000 crore. This move is expected to stabilize the return on equity (RoE).
Emkay Global has maintained its ‘Buy’ rating for Axis Bank, setting a target price of ₹1,400 per share. Similarly, JM Financial, despite acknowledging the current challenges in deposit growth, remains optimistic about Axis Bank’s improving liability franchise. The brokerage firm retains a positive outlook on the bank and recommends utilizing any significant dips in share price as an opportunity to increase exposure. JM Financial has also maintained its ‘Buy’ recommendation with a target price of ₹1,375 per share.
At 9:25 am, Axis Bank’s shares were trading 5.53% lower at ₹1,171.15 each on the BSE, reflecting the market’s reaction to the mixed earnings report and ongoing concerns over the bank’s asset quality.
