Axis Bank will announce its financial results for the second quarter of FY24 on October 25, 2023, Wednesday. The private sector lender is expected to report decent profit growth with a rise in net interest income, but margins are likely to remain under pressure, in line with a broader trend in the overall banking sector.
The banking sector’s overall credit growth remains healthy at 15% YoY in Q2FY24, mainly led by unsecured loans and some pick-up in corporate credit. Deposit growth has also picked up to 13% YoY, benefiting from the RBI’s mini demonetization of ₹2,000 notes and higher term deposit rate offerings by banks, which coupled with accelerating CASA cannibalization is expected to shore-up funding cost.
Axis Bank is expected to see a 12% year-on-year (YoY) rise in its net profit in the quarter ended September 2023 to ₹5,970 crore from ₹5,329.8 crore in the corresponding quarter of last year.
The lender’s net interest income (NII) in Q2FY24 is likely to grow by 15% to ₹11,914 crore from ₹10,360.3 crore, YoY. Net interest margin (NIM) is expected to be marginally lower sequentially due to higher cost of funds.
After a sharp margin downtrend in the past two quarters, the bank expects margin contraction to be contained in Q2.
“This coupled with contained provisions is expected to support profitability. Slippages are likely to remain largely flat QoQ; there are no signs of incremental stress as of now,” brokerage firm Emkay Global Financial Services said.
It expects Axis Bank’s Pre-Provision Operating Profit (PPoP) during the July-September quarter to increase 17.2% to ₹9,044.9 crore from ₹7,716.2 crore in the year-ago quarter.
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Kotak Institutional Equities builds in loan growth of around 20% YoY (3% QoQ as YoY is still not comparable because of Citi's acquisition).
“We are building in NIM to decline by ~5 bps QoQ, led by the higher cost of deposits. We expect the loan mix to be a bit more favorable toward higher-yielding loans as seen in recent quarters.
We expect slippages of ~ ₹42 billion (~2% of loans) mostly led by the retail segment. Trends on slippages and overall asset quality should not be too worrisome and broadly stable,” Kotak Institutional Equities said.
The brokerage house expects Axis Bank to make higher provisions for expenses pertaining to the merger. Citi integration, near-term growth trends and progress of NIM would be the key discussion areas for the quarter.
Meanwhile, Motilal Oswal Financial Services expects the private lender’s credit cost to remain under control, cost ratios to be elevated and margin to be under pressure. It expects business growth to remain healthy.
Axis Bank’s loan growth during the quarter under review is estimated to be 22%, while deposit growth is likely to be 20.7 on a year-on-year basis.
“Sequential loan growth will be in the 4% ballpark due to the idiosyncratic growth trajectory. NII growth will be slightly slower than loan growth due to the cost of deposits catching up. Consequently, NIM will be marginally lower sequentially. Sequential fee income growth will broadly match loan growth. Opex growth will slightly lag loan growth,” Yes Securities said.
Asset quality is expected to remain stable sequentially. Slippages would be broadly stable on a sequential basis, while provisions will be marginally higher sequentially due to prudential provisioning.
Meanwhile, Axis Bank share price has remained flat this year. The stock has fallen over 5% in the last one month and is flat in the last three months.
Axis Bank shares gained just over 3% year-to-date (YTD), while the stock is up 7% in the past one year.
On Monday, Axis Bank shares ended 1.72% lower at ₹963.45 apiece on the BSE.
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