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Growth momentum continues: Axis Bank’s net interest income (NII) increased by 2% QoQ/27% YoY to Rs 11,959cr on account of advances growth of 2% QoQ/22% YoY and acquisition of high yielding assets. Along with net interest income, other income increased by 4% QoQ/70% YoY to Rs 5,087cr which was driven by fee income growth and profit on sale of investments in the quarter. Operating profit (PPOP) too surged by 50% YoY to Rs 8,814cr leading to PAT growth of 41% YoY to Rs 5,797cr.

Stable growth in advances across sectors: Advances during the quarter increased by 2% QoQ/22% YoY which was driven by both corporate and retail segments, The corporate loans saw an uptick in demand with growth of 2% QoQ/25% YoY while retail loans increased by 2% QoQ/21%YoY. The bank sees growth momentum of corporate loans to continue as it has a healthy disbursement pipeline in Q2 from term loans and balance 30% from working capital and trade. Retail loans saw strong demand from all segments such as SBB (Small Business Banking), auto loans, personal loans and credit cards. On retail loans, the share of unsecured loans ranged between 20%-25%.

Deposits growth stronger than industry: Deposits during the quarter saw an increase of 17% YoY however, it declined sequentially by 1%. Term/fixed deposits were the main driver of growth at 2% QoQ/13% YoY. The increase in deposits was mainly attributable to the re-pricing of cost of deposits which increased by 28bps QoQ/114bps YoY. The management sees its deposit franchise growing faster than the industry with growth of 400bps in the quarter. CASA ratio was 45.5% growing by 300bps YoY, however, it declined by 100bps sequentially.

Increase in provisions: Provisions and contingencies was higher during the quarter as it increased by 238.5% QoQ/188% YoY. The surge in provisions was mainly due to the higher slippages from rural portfolio and lower recovery from few accounts.

Margin outlook: Net interest margin (NIM) increased by 50bps YoY, however, declined by 12bps QoQ on account of increased cost of deposits by 31bps QoQ/93bps YoY. The management expects the cost of deposits to increase going forward; however, the rate of increase is expected to moderate. The moderation in cost of deposits will benefit the NIMs which see an uptick further.

Valuation: We remain positive on the bank on the back of its positive growth outlook, growing advances, stable margins and improving asset quality. We believe that the premiumization of deposits will be one the key driver of the deposit’s growth. Moderation in cost of deposits will further lead to improving the margins, thus driving growth. We expect NII/PPOP/PAT to grow at a CAGR of 11%/15%/9% over FY23-25E. We maintain Buy rating with a target price of Rs 1,167 valuing the company at 2x of its FY25E Adj. BV.

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