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2025-01-27 04:09:27 pm | Source: Motilal Oswal Financial Services Ltd
Neutral Axis Bank Ltd For Target Rs.1,175 by Motilal Oswal Financial Services Ltd
Neutral Axis Bank Ltd For Target Rs.1,175 by Motilal Oswal Financial Services Ltd

Earnings in line; business growth moderates

LCR increases 4% QoQ to 119%

* Axis Bank (AXSB) reported 3QFY25 net profit of INR63b (up 3.8% YoY, in line) as lower opex offset higher provisions. In 9MFY25, earnings grew 8.6% YoY to INR192.6b, and we expect 4QFY25 PAT to come in at INR68.4b.

* NII grew 8.6% YoY/1% QoQ to INR136b (in line). NIMs moderated 6bp QoQ to 3.93%.

* Provisioning expenses stood at INR21.6b (higher than MOFSLe due to high loan loss-related provisions) as AXSB tightened its provisioning rules.

* Loan book grew 8.8% YoY (1.5% QoQ). Deposits grew 9.1% YoY (0.8% QoQ), resulting in a C/D ratio of 92.6%. CASA mix moderated to 39%. Average LCR increased 400bp QoQ.

* Fresh slippages increased to INR54.3b (INR44.4b in 2QFY25, in line). GNPA/ NNPA ratios inched up to 1.46%/0.35%. PCR stood at 76.2%.

* We cut our FY26E/FY27E earnings by 4-5% and estimate FY26E RoA/RoE of 1.6%/14.6%. While the near-term growth and asset quality performance may remain suppressed, reflecting the stress in the macro environment, we see limited downside risk from the current levels. Retain Neutral with a TP of INR1,175 (1.5x Sep’26E ABV).

 

Credit cost spikes on tighter provisioning rules; NIM moderates 6bp QoQ

* AXSB reported a net profit of INR63b (up 3.8% YoY, in line) as lower opex offset higher provisions. In 9MFY25, earnings grew 8.6% YoY to INR192.6b.

* NII grew 8.6% YoY/1% QoQ to INR136b (in line). NIMs moderated 6bp QoQ to 3.93%. Other income grew 7.5% YoY to INR59.7b. Treasury gains stood at INR3.7b (vs. INR11.1b in 2QFY25). Total revenue, thus, grew 8% YoY (down 3% QoQ) to INR195.8b (inline).

* Opex grew 1% YoY (down 5% QoQ) to INR90.4b (7% lower than MOSFLe). The C/I ratio has, thus, improved 79bp QoQ to 46.2%. PPoP grew 15.2% YoY to INR105.3b (in line).

* Loan book grew 8.8% YoY/1.5% QoQ, with retail/corporate loans up 1.2% /1.3% QoQ and SME loans growing 14.1% YoY/3.3% QoQ. Deposits rose 9.1% YoY/0.8% QoQ. CASA mix moderated 200bp QoQ to 39%. The C/D ratio increased to 92.6%, while LCR rose 4% QoQ to 119%.

* Fresh slippages increased to INR54.3b (INR44.4b in 2QFY25, in line). While GNPA/NNPA ratios inched up 2bp/1bp QoQ to 1.46%/0.35%. PCR stood at 76.2%. Credit cost stood at 1.28% vs. 0.90% in 2QFY25. Restructured loans edged lower to 0.12%

 

Highlights from the management commentary

* Deposit growth has been lower compared to other private banks, but the bank remains focused on improving the quality and granularity of deposits. The quality of LCR deposits has shown improvement, with the cost of deposits rising by just 3bp in recent quarters. 17 January 2025 14

* Gross slippages totaled INR54.3b, including INR9.9b due to seasonality. Retail slippages were INR49.2b, CBG INR2.1b, and corporate INR2.5b.

* The balance sheet has been managed in alignment with regulatory expectations, and the bank will continue operating within the current LDR range.

 

Valuation and view

AXSB reported in-line earnings as lower opex offset higher provisions. However, margin contracted 6bp QoQ. Asset quality deteriorated slightly as slippages increased sequentially, while GNPA/NNPA ratios were broadly stable. Credit cost rose as the bank tightened its provisioning policy. Deposit growth was muted, while advances grew 9% YoY (~5% in 9MFY25), leading to a C/D ratio of 92.6%. Average LCR increased to 119%, with outflow rates improving ~60bp over the last two years. We keenly monitor near-term growth as the C/D ratio is still high, which will constrain credit growth, while continued re-pricing of deposits may keep margins in check. We cut our FY26E/FY27E earnings by 4-5% and estimate FY26E RoA/RoE of 1.6%/14.6%. While the near-term growth and asset quality performance will likely remain suppressed, reflecting the stress in the macro environment, we see limited downside risk from the current levels. Retain Neutral with a TP of INR1,175 (1.5x Sep’26E ABV).

 

 

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