Axis Bank Q3 Review: Analysts Say ‘Buy’, But Rise In Costs Is Worrying
Axis Bank reported healthy operational performance in Q3, but cost is still a concern.
Most analysts reiterated 'buy' on Axis Bank Ltd. citing healthy loan growth and lower provisions even as elevated costs remained a concern.
The private lender saw its net profit jump more than threefold over the year earlier in the quarter ended December as provisions fell and income rose. Its net interest income, or core income, increased 17% year-on-year, while other income grew 31%.
The bank's asset quality also improved during the quarter. Total provisions fell 64% year-on-year and 23% sequentially.
Shares of Axis Bank rose as much as 2.58% in early trade on Tuesday compared with a 1.01% decline in the Nifty 50.
Of the 53 analysts tracking the lender, 48 suggest a 'buy' and five recommend a 'hold', according to Bloomberg data. The 12-month consensus price target implies an upside of 33.2%.
Here's what analysts made of Axis Bank's Q3 FY22 performance:
Jefferies
The key positive in Axis Bank's third-quarter results was the pick-up in loan growth, reflecting good growth across segments.
Pre-provision profit growth (ex-treasury) lagged top line as costs rose 25% year-on-year, largely due to a rise in retail-loan acquisition costs and investments in technology and distribution.
Management expects operating expenditure to stay higher for FY23 as well as they continue to invest.
Wide valuation gap with ICICI Bank can narrow a bit, though convergence will depend on rise in return on assets that will need expansion in net interest margin and fall in cost-income ratio.
Maintains 'buy' with a target price of Rs 1,040 apiece.
Kotak Institutional Equities
Axis Bank has reported positive outcomes on NIM, asset quality and loan growth, although return on equity was impacted by a higher cost structure.
Cost would grow at a lower level than revenue growth from here on.
Medium-term issue is return on equity normalisation, which is still a few years away.
Discount in valuations will continue for some time, although not at the levels witnessed currently.
Maintains 'buy' with a target price of Rs 960 apiece.
Emkay Global
In the near term, Axis Bank expects elevated costs, with cost to asset ratio of about 2.2%.
Builds in better NII and fee growth, taking into account the improving credit growth trajectory and lower provisions.
Retains previous earnings estimate as the improvement in business metrics will be offset by higher operational expenditure.
Underperformance in stock should reverse with strong Q3 print and better outlook.
Potential acquisition of Citi’s retail/card portfolio and the appointment of executive directors will be key near-term events to monitor.
Retains 'buy' with a target price of Rs 1,020 apiece.
Motilal Oswal
Strong operational performance, aided by robust loan growth, higher margin, and controlled provisions.
Loan growth was led by healthy momentum across business segments. The management sees continued traction in coming quarters.
Expects slippages to remain in control, enabling a sustained improvement in credit costs.
Expects Axis Bank to deliver RoA of 1.6% and RoE of 16.1% in FY24.
Maintains 'buy' with a target price of Rs 975 apiece.