Axis Bank share price fell 2% on Tuesday morning, a day after the private sector lender reported a massive 91% jump in Net Profit in the April-June quarter. Axis Bank share price hit an intraday low of Rs 713 per share, down from Monday’s closing price of Rs 728 apiece. Although the lender posted massive growth in net profit, operating profit was down 5% on-year basis. Analysts remain bullish on the stock as all key operating metrics showed improvement. “Asset quality is not showing any signs of concern. The bank is well positioned for a re-rating from current levels,” said analysts at Kotak Securities.
The massive rise in Axis Bank’s net profit was aided by a decline in its provisions and a lower base. Axis Bank told investors that its provisions were 89% lower from the previous year to now stand at Rs 359 crore. Gross NPAs of the bank declined 109 basis points on a sequential basis to 2.76% while Net NPAs were down at 0.64% from 0.73% in the January-March quarter. Operating profit was down 5% pulled lower by an 11% drop in net interest income.
“Slippage fell from 2.3% to 2.2% on-quarter. Axis is the only large bank to show a quarter-on-quarter decline in slippage. GNPL declined 4% QoQ. Total stress loans declined 6% sequentially,” analysts at Edelweiss said. “While Q1 was a strong beat, earnings volatility has been high in the past. With a clean loan book and focussed strategy, the CEO guided that core earnings delivery and NIM expansion will sustain,” they added while reiterating their Buy call on the stock. Edelweiss has raised EPS by 12%/19% for FY23E/24E and target price from Rs 920 to Rs 970, revising our target multiple to 2.1x from 1.9XBV Sep-23E.
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While Axis Bank has managed to moderate slippages and reduce provisions, analysts at Motilal Oswal highlighted that business growth was muted. Axis Bank’s loan book grew 14% from the previous year but fell 1% when compared to the January-March quarter. The corporate loan book declined 5% from the same quarter last year. Motilal Oswal has maintained a ‘Buy call on the stock with a target price of Rs 875 per share.
Shares of Axis Bank are up 3.36% so far this year, outperforming the benchmark Sensex and Nifty index.
Kotak Securities said that Axis Bank has converged on various operating metrics with its frontline peers. “We expect return ratios to operate in a very tight band and asset quality to be quite similar. However, there are some differences in terms of the relative strength of the franchise, which explains the current valuation difference,” they added. After the Q1 earnings, analysts believe, Axis Bank is relatively better placed to stop the divergence with its peers. “We base this thesis as return ratios are similar and importantly, there is less risk coming from asset quality,” they added. Analysts have pinned a fair value of Rs 960 per share on Axis Bank.