Axis Bank shares rise after Q1 results; should you buy?

The private lender reported a 41% year-on-year (y-o-y) increase in net profit for Q1FY24, driven by higher net interest income and fee income. Net profit during the quarter rose to ₹5,797 crore from ₹4,125 crore during the corresponding period last year.

Net interest income (NII) jumped 27% to ₹11,958 crore during the quarter ended June from ₹9,384 crore, YoY. 

Meanwhile, Net interest margin (NIM) declined by 12 basis points (bps) to 4.1% from 4.22% sequentially, largely owing to repricing of deposits.

Read here: Axis Bank Q1 Result: Net profit jumps 41% to ₹5,797 crore; NII up by 27%

Axis Bank Q1 results were largely in line with most analysts’ estimates. Take a look at what brokerages have to say about Axis Bank Q1 results.

Axis Bank delivered a stable performance in Q1FY24, with earnings driven by higher ‘other income’ even as margins compressed on expected lines. Business growth was healthy, led by traction across segments. Asset quality remains broadly stable with an increase in fresh slippages, the brokerage house said.

“The restructured book was well managed and coupled with a higher provisioning buffer, it provides comfort on credit costs. We made slight adjustments to our estimates and expect Axis Bank to deliver RoA and RoE of 1.9% and 17.7% in FY25,” Motilal Oswal said.

It reiterated its ‘Buy’ rating on the stock with a target price of ₹1,150 per share.

Kotak Institutional Equities

Kotak Institutional Equities maintained a ‘Buy’ rating with an unchanged target price of ₹1,100 per share, valuing the bank at ~2X book and ~13X March 2025 EPS for RoEs of ~16%.

“We are broadly keeping our estimates currently but we do note that the earnings have room for upgrades as we are still fairly conservative on our NIM estimates given the progression we are seeing on the loan mix and funding costs. We do believe that FY2024 would still be a relatively tough period as the Citi’s cost of integration would weigh on the cost ratios, which in a period of declining NIM would result in a stickier cost-ratio. As we get greater comfort with the progress of Citi’s acquisition and the business getting back to normalcy or comparable to its peers over the next few quarters, we should expect the bank to trade at a higher valuation multiple than where it is today,” the brokerage said.

Nuvama Institutional Equities

Nuvama Institutional Equities noted that quarterly volatility in core earnings for Axis Bank continues, which would cap near-term price performance. Yet, it believes the franchise has scope to improve and management could take more time to extract maximum value out of Citi.

It increased opex estimates, but also increased trading gains. 

“While our earnings have seen only a marginal cut, we expect sharper cuts to consensus earnings, as Street’s opex is much lower than Q1’s run rate,” it said. 

Nuvama Institutional Equities believes Axis Bank has scope to improve in the long-term. It maintained a ‘Buy’ call and increased its target price marginally to ₹1,130 based on 2x BV FY25E from 1.9x. 

Antique Stock Broking

With asset quality issues now behind and the merger consummated, the focus should now shift to core performance, Antique Stock Broking noted.

It expects RoA of 1.7% and 1.8%, while RoE of 17% and 18% over FY24/ and FY25. It maintained its FY24 earnings and marginally upgraded it by 3% for FY25. 

The brokerage house maintained a ‘Buy’ rating on the stock and raised the target price to ₹1,100 per share from ₹1,050 earlier.

Prabhudas Lilladher

The brokerage said that the balance sheet construct was being calibrated towards higher margin segments and granular deposits which could slightly affect loan growth. However, this should bode well over the medium term from a profitability perspective. 

“CITI integration costs and business investments would keep opex elevated. For FY24/25E we raise NIM and opex while reducing provisions resulting in ~3% PAT upgrade. With a likely RoA of 1.7% for FY25E, valuation discount to ICICI Bank (27%) should narrow,” Prabhudas Lilladher said.

It maintained multiple at 2.2x but raised target price to ₹1,170 per share from ₹1,140 earlier, reiterating its ‘Buy’ call.

Axis Bank continues to be in investment mode w.r.t to its distribution and liability franchise as well as digital initiatives. While initial signs of success are visible, we believe it is some time away from closing the gap with larger private sector peers. Meanwhile ability to successfully balance growth vs NIMs will lead to meaningful valuation upsides for Axis Bank in our view, JM Financial said. 

Given the long-term measures undertaken to improve the liability franchise portfolio granularity, it now expects ROA and ROE of 1.7% and 17.6% in FY25.

It maintained ‘Buy’ rating with a target price of ₹1,040 per share, valuing the core bank at 1.8x FY25E P/BV.

At 10:50 am, Axis Bank share price was trading 0.38% higher at ₹980.55 apiece on the BSE.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

Updated: 27 Jul 2023, 10:51 AM IST