Axis Bank Shares End 6.5% Lower Even As Analysts Say 'Buy' After Q4

Shares of Axis Bank Ltd. declined even as most analysts reiterated their 'buy' calls on the lender on improved asset quality and likely trending down of credit costs.

The private bank reported a 54% year-on-year rise in profit in the quarter ended March 31, beating the Bloomberg consensus analyst estimates.

Key Highlights (Standalone)

• Net interest income up 17% year-on-year at Rs 8,815 crore.

• Gross NPAs at 2.82% vs 3.17% as of December.

• Net NPAs at 0.73% vs 0.91% in the preceding three months.

• Recommended dividend of Re 1 apiece of face value of Rs 2 each.

• Net interest margin narrowed 4 basis points sequentially to 3.49%.

Analysts also highlighted the contraction in the bank's net interest margin and elevated operating expense.

Shares of Axis Bank fell as much as 7.01%, the most since March 7, before closing 6.5% lower at Rs 728.6 apiece.

Of the 50 analysts tracking the company, 44 maintain a 'buy' and six suggest a 'hold', according to Bloomberg data. The average of the 12-month consensus target price implies an upside of 22.4%.

Here's what brokerages made of Axis Bank's Q4 FY22 results.

• Maintains 'buy' with a target price of Rs 983, implying a potential upside of 27%.

• Operating profit came under pressure due to 7% YoY growth in net revenue while investments in growth and technology continued to keep opex elevated.

• Management remains optimistic with respect to NIM trajectory on the back of improving balance sheet composition, faster growth in high-margin unsecured loans and run-down of the RIDF bonds.

• Asset quality improved and the credit cost is expected to trend down. While we estimate 15-16% CAGR over FY22-24 in net interest income, we have upped our opex assumptions to account for higher spends in growth and tech.

• Although the bank has suspended its opex/asset guidance for now, it remains committed to achieving 16-16.5% RoE in the medium to long term.

• Compared to HDFC Bank and ICICI Bank, Axis Bank is expected to report lower RoA/RoE.

• Maintains 'buy' with a target price of Rs 930, implying a potential upside of 19%.

• Mixed quarter, with net profit up 54%, supported by lower provisions, even as margin declined and opex stood elevated.

• The cost-to-asset ratio will rise in the short term and therefore the bank is moving away from its 2% exit guidance.

• Asset quality continues to improve, aided by a decline in slippages and higher recoveries and upgrades. Restructured book moderated further, while a higher provisioning buffer provides comfort.

• Expect slippages to remain in control, enabling a sustained improvement in credit costs, though improvement in margin and cost ratios would be key to watch for.
  

• Maintains 'buy' with a target price of Rs 970, implying a potential upside of 24%.

• Despite several levers for margin traction including sharp decline in net slippages and higher share of non-wholesale book, improvement in NIM remained elusive.

• Asset quality trends continue to hold strong with marginal net slippages, decline in restructured book to 0.5% led by recoveries, rise in PCR to 75%, and industry best standard provisioning buffer at 1.4% of loans.

• Weaker NIM has resulted in a large gap in core PPoP margin and RoA vs peers.

• The bank’s discount in valuations to standalone ICICI (at 30-35%) is likely to continue over medium term given the differential in core PPoP/RoA.

• Encouraging asset quality trends, healthy growth prospects, and high provision buffers continue to provide comfort.

• Maintains 'buy' with a target price of Rs 1,020, implying a potential upside of 30.8%.

• Despite retail-driven healthy credit growth, Axis Bank continued to report subdued core earnings growth at 9% YoY, mainly led by subdued margins and higher opex, including a one-time expense related to the Citi portfolio acquisition and business/collection-related spends.

• Opex is likely to remain high in the near-to-medium term, given the bank’s higher digital spends, and accelerated investment to ramp up the retail business could largely offset the margin gains.

• The bank’s recent opex conundrum (risk of upward revision in cost/asset guidance for FY23) and the potential impact on core profitability in the near term will be a drag on the stock’s performance.

• Key risks: Higher-than-expected NPA formation and expenses; any signs of management instability, which has moderated a bit recently.

• Maintains 'buy' with a target price of Rs 996, implying a potential upside of 27.6%.

• Axis Bank delivered a mixed bag with earnings marginally ahead of estimates, driven by lower credit cost. However, PPOP was impacted by moderation in loan growth/ margins and higher opex.

• Net slippages were muted even as the restructured pool and sub-investment grade portfolio improved sequentially.

• Despite a gradual shift in its incremental loan mix towards higher-yielding loans, we do not yet see evidence of Axis Bank's ability to exercise better pricing power, which remains a key driver for RoA reflation.

• Maintains 'buy', cuts target price from Rs 975 to Rs 940, implying a potential upside of 20.5%.

• Axis Bank earnings were mixed as operating income missed estimates by 4% due to weaker margins.

• Loan growth was a tad higher led by retail, however the management was a bit cautious on credit growth in FY23E owing to a tougher global environment.

• The likelihood of reaching the guided RoE of ~16% seems lower in the medium term as margin recovery could be protracted and opex may remain elevated.

• Balance sheet strength and improving asset quality provide some cushion. Valuation discount to ICICI Bank might widen to 20-25% (currently 16%) unless NIM improves.