Axis Bank Ltd’s results for the quarter ended September were an extremely pleasant surprise for the markets. The company’s share price rose by nearly 20% on Monday after the results were announced. The last time around, after the company announced results for the June quarter, its shares had fallen by more than 12% in three trading sessions on concerns about its asset quality.
Net non-performing assets (NPAs) had jumped by more than 30% over the March quarter, largely owing to defaults in its credit card division. The fear then was that some of the pain related to NPAs would get reflected even in the next quarter. But net NPAs rose by only 3.4% in the September quarter. Note that gross NPAs rose at a higher rate of 11%, but the company has provided for NPAs at a higher rate this quarter, thanks to lower provisioning on account of mark-to-market losses. As a percentage of assets, net NPAs now stand at 0.43% compared with 0.47% at the end of the June quarter.
But this is just one reason why the markets were excited about Axis Bank’s results. Growth in net interest income, at 55%, was much higher than analysts’ estimates. Motilal Oswal Securities, for instance, had estimated that it would grow by 41% on a year-on-year basis. The rate of growth is certainly lower than the average growth of 86% in the past four quarters, but note that growth was spurred by fresh capital infusion on the one hand, and because of a low base, on the other. With the base having caught up, growth was expected to be lower.
What’s more, fee income jumped by 91% last quarter, accounting for nearly two-fifths of total operating income of the company, compared with about a third of its income a year ago. Trading profit accounted for just 2% of operating revenue, down from 6% a year ago. Put simply, the sources of the company’s revenues seem stable and less susceptible to large fluctuations.
Having demonstrated both robust growth and an improvement in its asset quality, it’s not surprising why Axis Bank shares bounced back sharply. It had corrected by as much as 57% from its highs in January and valuations had corrected to twice its estimated book value for the current year. The company’s shares can now be expected to make the most of any revival in the markets, thanks to its strong operating performance.
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