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Axis reported a steady operating performance with Core PPOP at INR 91bn (+46% YoY, +3% QoQ) aided by a) healthy growth momentum (loans +11% QoQ, +19% YoY; deposits +11.6% QoQ, +15.2% YoY – though aided by Citi acquisition), b) steady NIMs at 4.22% (- 4bps QoQ) and c) robust core fee income (+14% QoQ, +20.5%YoY), despite elevated opex levels (+9% QoQ, 13.6% YoY). However, Axis reported a net loss of INR 57bn driven by oneoff extra-ordinary items (amortisation of goodwill, impact of harmonisation of policies and one-off integration exp) of INR 125bn. Management continues to guide for a loan growth of 400-600bps above industry growth and a deposit growth in tandem with loan growth. While we remain watchful on the NIMs trajectory going ahead and the impact of Citi integration, there are sufficient levers to sustain/improve the NIMs – 13% higher LCR and excess SLR of 7-8%. The bank is likely to overshoot its target of 2.0% cost-to-assets ratio by FY25 on account of additional integration expenses of INR 20bn (pre-tax) to be amortised over next 18 months. However, we believe AXSB’s transformation is in the right direction with sustaining loan growth momentum, improvement in liabilities profile, robust asset quality resulting in low credit costs and steadily improving return profile. Current core valuations of 1.5x FY25E BVPS are inexpensive and we expect valuations can rerate upwards by steady delivery on the loan growth and NIMs expectations along with a strong operating performance on a more sustainable basis. We maintain BUY with a revised TP of INR 1,075 valuing the core bank at 1.8x FY25E P/BV.

* Steady operating quarter: Loan growth was well rounded across segments (retail/ SME / wholesale growth at +22%/+23%/+14% YoY) and management remains confident of sustaining growth of 400-60bps above industry growth. Deposit growth improved to +15%YoY, +12% QoQ though aided by Citi acquisition. Granularity profile of the liabilities remains strong with quarterly avg. CASA ratio at 44% (flat QoQ). NIMs witnessed minor blip to 4.22% (-4bps QoQ). We expect NIMs to remain healthy cushioned by 13% higher LCR and excess SLR of 7-8%. Opex growth continues to be elevated at +9% QoQ, 13.6% YoY as investments in tech and future growth continue. The bank is likely to overshoot its target of 2.0% cost-to-assets ratio by FY25 on account of additional integration expenses of INR 20bn (pre-tax) to be amortised over next 18 months.

* Robust asset quality: Asset quality for Axis remains robust with GNPL/NNPL/restructuring at 2.2%/0.4%/0.2% (-40bps/-8bps/-9bps QoQ). Slippages remain under control at INR 38bn (1.95% of loans vs 2.15% QoQ) which coupled with healthy recoveries/upgrades led to lower net slippages of 0.6% vs 1.0% QoQ. This resulted in low credit costs of 14bps (vs 75bps QoQ). We remain positive on AXSB’s asset quality aided by high quality incremental underwriting and robust provision buffers (1.4% of loans incl. std. asset provisions) and build avg. credit cost of 60bps over FY24-25E.

* Valuation and view: In our view, transformation is in the right direction with sustaining loan growth momentum, improvement in liabilities profile, robust asset quality resulting in low credit costs and steadily improving return profile. Delivery on the loan growth

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