Buy Axis Bank Ltd for the Target Rs 1,600 by Emkay Global Financial Services Ltd
Axis Bank reported PAT of ~Rs70bn (up 38% yoy/down 1.6% qoq), 2% below our estimate, while PPOP at Rs110.8bn missed our estimate by 6%. The miss was due to lower other income and elevated operating expenses, partly offset by provisions coming 23% below our estimate. Opex increased 9% yoy/11% qoq to Rs108.2bn, including Rs2.5bn of one-off costs related mainly to labor codes and FCNR(B) mobilization. Despite this, cost-to-assets declined by 6bps qoq/24 bps yoy to 2.14%. Provisions fell 52% yoy, with credit costs declining to 54bps, supported by lower slippages (1.7%) and improving asset quality (GNPA at 1.16%, down by 12bps qoq). Advances grew 23% yoy/9% qoq, supporting the growth outlook, although FCNR(B)-related pressure weighed on NIM. Management expects margin to improve as FCNR(B) funds are deployed and higher-cost deposits are retired. The ECL transition impact is expected to be manageable, supported by ~Rs80bn of contingent provisions. Improving margins, operating efficiency, and credit costs are expected to drive up ROA to 1.4–1.5% over FY27-29E.The stock is currently trading at cheap valuations of 1.3x Sep-28E P/ABV. Hence, we retain BUY on Axis Bank with unchanged TP to Rs1,600, rolling forward Standalone bank valuations on 1.6x Jun-28E P/ABV and subs at Rs137/sh.
Strong Advances growth; Margin to improve Advances grew 23% yoy/9% qoq, led by corporate (up 34% yoy) and commercial (up 29% yoy) banking. Deposits rose 20.7% yoy/5.8% qoq, driven by term deposits (up 27% yoy/8.4% qoq), while CASA ratio declined to ~32%. The FCNR(B) mobilization contributed ~Rs1,018bn, with ~8% market share. NIM declined by 10bps qoq to 3.36%, reflecting a 11bps drag from FCNR(B) mobilization and deployment, partly offset by lower interest reversals. Ex FCNR(B), NIM was 3.47%, up by 1bp qoq, as liability repricing partly offset the impact of repo-rate cuts and adverse balance-sheet mix. Management expects margin to improve over 3Q–4QFY27 as FCNR(B) funds are deployed into advances and higher-cost non-retail term deposits are retired.
Asset quality improves; ECL impact manageable Asset quality improved, with gross slippage ratio declining by 31bps qoq to 1.48%, reflecting broad-based improvement across portfolios. GNPA fell by 12bps qoq to 1.16%, while NNPA declined by 4bps to 0.35%. Credit costs fell to 54bps, the lowest in several quarters. Recoveries from written-off accounts rose 51% yoy to Rs9.7bn, reflecting underlying recovery trends rather than one-off gains. Management expects further credit-cost improvement, while the ECL transition impact is expected to be manageable, supported by ~Rs80bn of additional provisions
We retain BUY with unchanged TP of Rs1,600 Improving margins, operating efficiency, and credit costs are expected to drive ROA to 1.4-1.5% over FY27–29E. Hence, we retain BUY with unchanged TP of Rs1,600, rolling forward the SA bank valuation on 1.6x Sep-28E P/ABV and subs at Rs137/sh. Key risks: macro dislocation, delay in unsecured retail NPA stress moderation and KMP attrition.
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