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Built resiliency, but needs growth/management stability

We met Axis Bank’s ED Subrat Mohanty and CFO Puneet Sharma, to understand the business/profitability outlook, more so in view of the recent monetary policy. The management believes RBI’s policy stance is credit-positive, though it is too early to upgrade system growth estimates; also, the mgmt resisted giving guidance for FY26. For the medium-to-long term, it expects growth to be 300-400bps above the system growth. The bank managed its margins aptly in FY25. The recent sharp rate-cut could exert pressure on margins of most banks in 1HFY26 (more so in 2Q), as also for Axis Bank, although liability re-pricing should help partly recoup margins in 2H. The bank expects reported NIM to settle at ~3.8% (vs 4% in FY25) in the medium term. Stress in the credit card portfolio has eased; however, the strain would take some time to allay in MFI/PL which, along with the bank’s prudent recognition/provisioning policy on unsecured loans, could keep LLP elevated in the near term. We fine tune our earnings estimate (1% snip), while retaining BUY on Axis, given attractive valuations; our TP is unchanged at Rs1,400 (we value the SA bank at 1.7x FY27E ABV and subs at Rs125/sh). We believe the bank’s next level of re-rating will be contingent on further growth acceleration/management stability.

Strong tech/operational resiliency, though needs mgmt/growth stability

We reckon that Axis Bank has built strong tech, compliance, and risk management architecture over the years, thus avoiding any regulatory or business disruptions, unlike peers. This also reflects in its superior App rating (4.7 on google play; 4.8 on iOs) vs large peers which we believe should feed into better customer experience and crossselling. The bank has also re-oriented its liability profile with average interest rate duration of 15-18M for the portfolio, lower dependence on high-cost wholesale deposits, and rationalizing the price-gap with peers. This, along with steady reduction in RIDF bonds and shifting portfolio composition toward retail, has led to better margin stability vs peers (down by only 8bps in FY25 vs 10-40bps for large peers, ex-HDFCB). However, Axis Bank’s credit growth trajectory has been volatile and sub-par vs peers, while it has seen senior management-level attrition at frequent intervals. We believe Axis needs to resolve issues at the management level and leverage its otherwise strong platform for delivering a better/stable growth trajectory and thus narrow the valuation gap with peers.

MFI/PL stress, as also credit cost, will take some time to ease

The mgmt believes peak stress is behind in the credit card portfolio, though MFI stress may take another quarter to allay while the easing of strain in PL may be stretched further. Axis has tweaked its stress recognition/provisioning policy pertaining to settlement cases; this change could have a bearing on credit cost in the near term, albeit even-out in the long run. The bank has no plans for further unilateral policy changes that may impact its headline NPAs/LLP. Thus, we believe the bank’s LLP has largely peaked.

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