Axis Bank share price sinks 8% post Q1FY25 results shocker; time to buy? | News on Markets

While the results were sub-par, Street remains “cautiously optimistic” on stock outlook.

 

Analysts at JM Financial, for instance, have retained their ‘Buy’ rating on Axis Bank stock with an upwardly revised target price of Rs 1,375 (from Rs 1,330).

 

“Axis Bank continues to be amongst our top-picks as it has outperformed the Bank Nifty by about 3 per cent and 10 per cent in the last three months and six months, respectively. We believe sustainability of NIMs, moderation in opex, and control on credit costs should help Axis Bank sustain its outperformance,” the brokerage said in its post results update report.

 

Axis Bank Q1FY25 results: Hits and Misses

On Wednesday, July 24, Axis Bank reported a net profit of Rs 6,035 crore in Q1FY25, up 4 per cent year-on-year, but down 15 per cent sequentially.

 

The bottomline was hit by higher provisions and contingencies, which stood at Rs 2,039 crore in Q1FY25, compared to Rs 1,185 crore in Q4FY24 and Rs 1,035 crore in Q1FY24.

 

Loan loss provisions more than doubled on Y-o-Y basis and was up 3 times sequentially to Rs 2,551 crore. 

 

Axis Bank’s asset quality also worsened in the quarter gone with reported gross NPA ratio at 1.54 per cent, up 11 bps sequentially. Similarly, net NPA ratio moved up 3 bps sequentially to 0.34 per cent.

 

Further, as loans grew 14 per cent Y-o-Y (2 per cent Q-o-Q), and deposits 13 per cent Y-o-Y (down 1 per cent Q-o-Q), Axis Bank’s loan-to-deposit ratio (LDR) inched up to 92 per cent in Q1FY25 vs 90 per cent in Q4FY24.

 

“There has been deterioration in asset quality across some parts of the book, such as retail unsecured but it is not a of concern as of now as internal risk benchmarks have not been breached,” noted analysts at YES Securities with a ‘Buy’ rating (target: Rs 1,550).

 

Reported net credit cost amounted to 97 bps for the quarter, but the management does not regard this as indicative of the credit cost expected for full year FY25. About 30 bps of this is attributable to timing difference for recoveries from the wholesale book.

Given this, analysts at Kotak Institutional Equities have retained their ‘Buy’ rating on Axis Bank stock with an unchanged target price of Rs 1,500 as it attributes the weakness in slippages and asset quality to seasonality. 

 

“Going ahead, it is quite likely that investors could look to step away for some time until we can crystallise the size of the (slippage) problem. Nonetheless, any weakness in the stock price should be used as a reason to turn more constructive,” the brokerage noted.

 

Analysts cut Axis Bank earnings estimate

That said, analysts believe the elevated LDR to constrain credit growth in near-term, while continued re-pricing of deposits may keep margins under check. Besides, the Bank’s decision to raise equity capital to the tune of Rs 20,000 crore couild also cap the return in equity (RoE).

 

“The impact of a surge in non-retail deposits will need to be monitored over the coming quarters. We cut our earnings estimate by 5.6 per cent/7.8 per cent in FY25/26, as we moderate our growth assumptions and build in higher credit costs,” said analysts at Motilal Oswal Financial Services with a ‘Neutral’ rating.

 

Global brokerage Citi has downgraded the stock to ‘Neutral’ with a lower target price of Rs 1,320. It, too, has cut FY25/26 earnings estimate by 3 per cent/1 per cent. 

First Published: Jul 25 2024 | 11:10 AM IST