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Earnings in line; remain watchful on growth and NIMs

Cost ratios to remain elevated

 AXSB reported in-line PAT at INR60.7b (up 4% YoY/3.5% QoQ) in 3QFY24, driven by healthy other income, which was partly offset by an increase in provisions due to AIF-related provisioning.

 NIMs moderated 10bp QoQ to 4.01%. The management has suggested that funding costs will continue to inch up over the next two quarters.

 Loan growth was healthy at 22% YoY/3.9% QoQ, while deposit growth was robust at 5% QoQ. The C/D ratio moderated 110bp QoQ to 92.8%.

 Fresh slippages increased to INR37.2b, whereas healthy recoveries led to a decline in the GNPA ratio. The restructured book was under control at 0.18%.

 We cut our FY25E EPS by ~8% considering an increase in costs and margin pressures. Moreover, with a high CD ratio being of ~93%, we estimate AXSB to deliver a 15.7% CAGR in loans over FY24-26E, slower than peers’.

 Accordingly, we estimate FY25 RoA/RoE of 1.7%/17.4%. We downgrade our rating on AXSB to Neutral with a revised TP of INR1,175 (1.8x Sep’25E ABV).

Deposit growth accelerates; NIMs decline 10bp QoQ

 AXSB’s 3QFY24 PAT grew 3.5% QoQ to INR60.7b (in line), aided by healthy other income and credit growth, partly offset by higher provisions due to AIF-related provisioning.

 NII grew modestly by 9% YoY (1.8% QoQ) to INR125.3b. Reported margins declined 10bp QoQ to 4.01% due to an increase in funding costs. Fee income grew 26% YoY/4.2% QoQ, while treasury gains supported other income growth at 10.3% QoQ (5% above our estimate).

 Opex grew 31% YoY/3% QoQ (in line), owing to continued investments in digital and technology, employee increments, and expenses related to Citi’s integration. While the C/I ratio moderated to 49.5% in 3QFY24, the cost-toassets ratio continued to inch up. PPoP grew 5.9% QoQ to INR91.4b (in line). Bank suggested continuing investing in the business drawing benefits from controlled credit cost.

 Loan book grew 22% YoY/3.9% QoQ, with Retail/corporate loans up 5.3%/1.3% QoQ and SME loans growing at a faster rate at 26% YoY/4.2% QoQ. Deposit growth gathered pace at 18.5% YoY/5% QoQ, led by faster growth in non-retail TDs at 21.3% QoQ. The CASA ratio moderated 200bp QoQ to 42%.

 On the asset quality front, fresh slippages inched up to INR37.2b (vs. INR32.5b in 2QFY24). The GNPA ratio improved by 15bp QoQ to 1.58%, while the net NPA ratio remained stable at 0.36%. PCR declined to 77.8%. Restructured loans edged lower to 0.18% of net advances.

Valuation and view

AXSB delivered in-line earnings in 3QFY24, characterized by a recovery in business growth. However, NIMs moderated 10bp QoQ. Provisions were high partly due to AIF-related provisioning, though overall asset quality remained healthy. We will keep an eye on near-term growth as an elevated CD ratio will constrain credit growth, while continued re-pricing of deposits will likely exert pressure on margins in the coming quarters. The bank has healthy LCR of 118% as it maintains industrybest outflow rates; however, the impact of a surge in non-retail deposits will need to be watched over the coming quarters. The bank has reiterated its guidance of growing by 400-600bp higher than the system over the medium term. AXSB has also suggested that it will continue to invest in the business, taking advantage of controlled credit costs. This will keep cost/asset ratios elevated, much higher than the earlier guidance of reaching ~2% cost/assets by the end of FY25. We cut our FY25 EPS estimates by 8% considering an increase in costs and margin pressures. We, thus, estimate FY25 RoA/RoE of 1.7%/17.4%. Accordingly, we downgrade our rating to Neutral with a revised TP of INR1,175 (1.8x Sep’25E ABV).

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