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Credit growth prospects remain healthy

Axis Bank offers a wide range of banking services in India, including cash and credit management, retail banking, investment management and treasury services.

* In Q1FY25, the bank’s net interest income (NII) rose 12.5% YoY to Rs. 13,448cr (+2.7% QoQ), driven by growth in higher yielding assets.

* Asset quality improved with net non-performing assets (NPAs) and gross NPA declining to 0.34% and 1.54%, respectively (vs. 0.41% and 1.96% in Q1FY24).

* Axis Bank reported a decent quarter, with its loan book and net profit rising. Asset quality continues to remain healthy despite higher slippages. Also, with better asset mix and granularisation of deposits, the bank has been able to keep NIM stable. Therefore, we continue to remain optimistic about its long-term growth prospects. Hence, we maintain our BUY rating on the stock with a revised target price of Rs. 1,349 based on 2.0x FY26E book value per share (BVPS).

Steady operating performance

In Q1FY25, Axis Bank’s interest income grew 17.6% YoY (+2.9% QoQ) to Rs. 30,061cr, driven by higher yield on advances. Interest expense rose 22.2% YoY (+3.0% QoQ) to Rs. 16,613cr. As a result, NII grew 12.5% YoY (+2.7% QoQ) to Rs. 13,448cr. However, net interest margin (NIM) shrank 50bps YoY (-1bp QoQ) to 4.05%, owing to the rising cost of deposits. Further, pre-provision operating profit increased 14.7% YoY to Rs. 10,106cr, primarily owing to higher other income (+13.7% YoY). Subsequently. adjusted profit after tax rose 4.1% YoY to Rs. 6,035cr, as provisions increased 97.1% YoY owing to the tightening of provisioning policies.

Key concall highlights

* In Q1FY25, the bank added 50 branches taking the overall distribution network to 5,427 domestic branches.

* Integration of Citibank was successfully completed two months ahead of schedule.

* Management expects credit growth to be 300-400bps higher than that of the industry in the medium-to-long term

Continue to maintain strong balance sheet

Advances rose 14.2% YoY (+1.6% QoQ) led by strong growth in retail and domestic corporate loans. Retail loans grew 41.7% YoY driven by home loans (+6% YoY), personal loans (+29% YoY) and credit cards (+22% YoY), while domestic corporate loans increased 6.6% YoY on rising economic activity. The bank managed to increase its deposits (+12.8% YoY/-0.6% QoQ), mainly owing to term deposits that grew 20.5% YoY and 1.4% QoQ. Additionally, asset quality improved with both gross NPA and net NPA declining on YoY basis. However, slippages were up 20% YoY owing to seasonal stress in the unsecured retail portfolio.

Valuation

Consistent growth momentum in advances and deposits is expected to continue as the bank, with its technological advancement and better reach, is well-equipped to capitalise on growing demand. Margin is expected to remain range bound, as the bank would be able to offset the effect of the rising cost of deposits with high-yielding assets. Additionally, the bank's sound asset quality, sufficient capitalization, and ongoing digital transformation are expected to enhance its future performance. Hence, we maintain our BUY rating on the stock with a revised target price of Rs. 1,349 based 2.0x FY26E BVPS.

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