Neutral Axis Bank Ltd For Target Rs. 1,300 by Motilal Oswal Financial Services Ltd
Earnings in line; CD ratio eases to 88.7%
Asset quality holding stable
* Axis Bank (AXSB) reported 4QFY25 net profit of INR71.2b (flat YoY, up 13% QoQ, in line).
* NII grew 6% YoY/2% QoQ to INR138.1b (in line). NIMs expanded 4bp QoQ to 3.97%.
* Provisioning expenses stood at INR13.59b (14% lower than MOFSLe), driven by controlled slippages and write-back of provisioning on SR receipts.
* Loan book grew 8% YoY (3% QoQ), while deposits grew 10% YoY (7% QoQ), resulting in a moderation in the C/D ratio to 88.7%. The CASA mix increased 200bp QoQ to 41%.
* Fresh slippages stood at INR48.05b (INR54.3b in 3QFY25 and INR44.4b in 2QFY25). GNPA/NNPA ratio improved 18bp/2bp QoQ to 1.28%/0.33%. PCR moderated slightly to 75%.
* We fine-tune our earnings estimate and expect FY27E RoA/RoE of 1.7%/15.0%. Reiterate Neutral with a revised TP of INR1,300 (1.6x FY27E ABV).
Business growth gains traction; NIM expands 4bp QoQ
* AXSB reported 4QFY25 net profit of INR71.2b (flat YoY, up 13% QoQ, in line). In FY25, earnings grew 6.1% YoY to INR263.7b.
* NII grew 6% YoY/2% QoQ to INR138.1b (in line). NIMs expanded 4bp QoQ to 3.97%. Other income stood flat YoY at INR67.8b (in line). Treasury gains stood at INR1.73b vs INR3.7b in 3QFY25. Total revenues, thus, grew 4% YoY to INR205.9b (in line).
* Opex grew 6% YoY to INR98.4b (3% higher than MOFSLe). The C/I ratio has, thus, increased 158bp QoQ to 47.8%. PPoP grew 2% YoY to INR107.5b (4% miss).
* AXSB’s loan book grew 7.8% YoY/2.6% QoQ, with retail/corporate loans up 2.8% QoQ/1.6% QoQ and SME loans growing 14.4% YoY/3.9% QoQ. Deposits grew at 10% YoY (7% QoQ), resulting in a moderation in the C/D ratio to 88.7%. The CASA mix increased 200bp QoQ to 41%.
* Fresh slippages stood at INR48.05b (INR54.3b in 3QFY25 and INR44.4b in 2QFY25). The GNPA/NNPA ratio improved 18bp/2bp QoQ to 1.28%/0.33%. PCR moderated slightly to 75%. Credit cost (annualized) for the quarter stood at 50bp. Restructured loans stood stable at 0.12%.
Highlights from the management commentary
* The expansion in margin was primarily driven by better asset quality (2bp), while an additional 1bp came from interest income on IT refunds.
* A written-back provision of INR8.01b on security receipts was booked on P&L, while INR5.37b of interest on these receipts has not been booked.
* The bank has seen stabilization in the card portfolio. Personal loan will take a few more quarters to show improvement.
Valuation and view
AXSB reported in-line earnings, with margins expanding 4bp QoQ. Asset quality improved slightly as slippages were under control, while the GNPA/NNPA ratio improved sequentially. Deposits grew 7% QoQ, while advances grew 3% QoQ, leading to an improvement in the C/D ratio to 88.7%. Average LCR stood at 118%. Some stabilization was seen in the credit card portfolio; however, the bank is becoming more stringent in classifying loans, which could affect slippages going forward. Additionally, given the rate cut, margins are expected to remain under check. We fine-tune our earnings and estimate FY27E RoA/RoE of 1.7%/15.0%. Reiterate Neutral with a TP of INR1,300 (1.6x FY27E ABV).
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