Axis Bank’s fourth-quarter financial results: While organic loan growth and asset quality surprised Phillip Capital favourably, the Q4FY23 performance was somewhat below its forecast.
Axis Bank’s loss for the March quarter was in line with market estimates due to harmonisation related to the Citi portfolio acquisition, which was a one-time occurrence. A few metrics, excluding the Citi integration, fell just shy of analyst forecasts. While margins did reduce marginally, the pre-provision operating profit (PPoP) shortfall was driven by a shortfall in net interest income (NII).
Following the presentation of its quarterly results, Morgan Stanley values the company at Rs 1,200, Jefferies at Rs 1,150, and Macquarie at Rs 940. Nonetheless, the majority of the stock’s price expectations varied between Rs. 1,050 to 1,100.
Analysts largely believe that now that the merger has been completed and the asset quality issues have passed, the focus should shift to the bank’s fundamental performance.
According to Emkay Global, Axis Bank produced solid credit growth (ex-Citi) of 16 percent year on year, but the bank’s net interest margin, which was 4.2 percent, shrank marginally due to lower loan yields and higher funding costs. Emkay Global noted that this, combined with higher opex, resulted in a modest miss on core profitability; nevertheless, LLP resulted in a net profit beat (ex-Citi one-off).
“After a sharp decline in RoA to a low of 0.8% due to the blow on Citi’s portfolio acquisition in FY23, we expect the bank to report 1.8% RoA and 18% RoE (inflated due to Citi’s acquisition goodwill w-off) on a merged basis (without factoring any equity dilution) over FY24-26E, due to better growth and moderation in operational costs,” Emkay said while revising its target to Rs 1,225 on the stock.
Axis Bank’s fourth-quarter results: Rs. 5,728 billion in losses; private bank 1 rupee dividend
According to Nuvama Institutional Equities, Axis Bank missed the NII consensus by 3% and has a target price of Rs 1,100 for the shares. The trading company, however, was quick to point out that while the consensus was for standalone NII, the reported NII was consolidated and took into account the Citi acquisition for one month.
“We estimate that the like-to-like miss is 5%.” We estimate that standalone NII rose at a much slower rate of 1% QoQ due to lower loan yields than reported (consolidated) NII growth of 2.5% QoQ. Despite strong retail expansion and a rise in EBLR, standalone yield remains negative QoQ. Lower credit costs and higher fees relieved pressure on NII and opex, it noted.
“We estimate the like-to-like miss to be 5% higher.” The reported (consolidated) NII growth is modest at 2.5% QoQ, and we estimate standalone NII expanded even more slowly at 1% QoQ due to a lower loan yield. Despite strong retail growth and an increase in EBLR, the standalone yield is flat QoQ and negative. Lower credit costs and greater fees compensate for the pressure on NII and opex, according to the report.
Even though the margin remained range-bound, Motilal Oswal Securities reported that Axis Bank delivered a solid performance, with earnings driven by lower provisions and greater fee income. According to the report, asset quality kept rising thanks to moderate slippage rates and encouraging trends in recoveries and upgrades.
The managed nature of the restructured book, along with a larger provisioning buffer, gave reassurance regarding credit cost. We revise our projections marginally and anticipate Axis Bank to generate a RoA/RoE of 1.9%/18.1% in FY25. Continue to buy with a target price of Rs. 1,100 (based on 1.8 times September 2024E BV),” stated Motial Oswal.
Future margin moderation, greater operating expenses, and future credit cost normalisation are all factors that Nirmal Bang Institutional Equities predicts will cause return ratios to moderate. By FY25E, it anticipates the bank to post RoA of 1.6% and ROE of 16.3%. The firm has increased the stock’s target price to Rs. 1,025 from before.
As it moved its estimates to FY25 from 1HFY25, Antique Stock Broking reduced its earnings estimates for Axis Bank by 2-3 per but raised its target price on the stock to Rs. 1,050 from earlier.
The stock is valued at 1.8 times FY25E adjusted book value, according to ICICI Securities, which has a target price of Rs 1,050 on it. This is in line with long-term average trading multiples. For its subsidiaries, this brokerage has set a share value of Rs 74.
“The bank has acquired one of the strongest premium retail franchises in India, and good performance here should result in robust NIMs, improved fees, and an increase in RoE starting in FY25. Although Axis Bank has a strong internal accrual and a reasonable CET 1 of 14%, we think it may look to raise capital, which would spur even more robust growth, the report said.
The Q4FY23 result was slightly below Phillip Capital’s expectations, but organic loan growth and asset quality exceeded its expectations.
“Deposit repricing will come after loan pricing, which will cause it to go away. However, the bank has adjusted the corporate segment’s growth while growing the unsecured retail loan and commercial segments, offering some margin protection. Opex will have an impact on operating performance for the entire current fiscal year. However, we anticipate a slow but steady improvement in the bank’s risk-adjusted return, which would necessitate a re-rating for the bank in the medium term,” it added.
On the stock, this bank has suggested a target price of Rs 1,050.
