MUMBAI: Axis Bank is expected to report a steady performance in its March quarter earnings, marked by resilient loan growth, modest margin pressure and improving asset quality trends, six brokerages said. While headline growth remains healthy, the focus of analysts and investors will be on liquidity coverage ratio (LCR) and management commentary on the outlook for growth and profitability.
Net profit at India’s third-largest private sector lender is expected to fall more than 2% to ₹6,942 crore from a year earlier, according to a poll by Bloomberg. However, profit is seen rising almost 7% sequentially. The bank is scheduled to release its earnings report on Saturday.
Loan growth is expected to remain robust, although sequential momentum may soften. In the quarter ended December, the bank’s loans increased 14% on-year to ₹11.59 trillion and deposits grew 15% to ₹12.6 trillion.
Brokerage Kotak Institutional Equities expects the bank’s loan growth at 18% on-year and 6% on-quarter. However, margins are likely to face some pressure in the quarter due to the lagged impact of repo rate transmission. The Reserve Bank of India cut the repo rate by 25 basis points in December.
The net interest margin is likely to decline 7 bps on-quarter due to transmission of repo cut, partly offset by term deposit re-pricing and cash reserve ratio cut, Nomura Global Markets Research said in a report.
While most brokerages expect margins to decline by 6-7 bps, Kotak Institutional Equities is slightly more conservative, building in a 10 bps on-quarter decline to factor the composition of the loan portfolio that the bank is pursuing for growth. The bank’s NIM was 3.64% in the quarter ended December.
Systematix Institutional Equities flagged that the fall in cost of deposits is not expected to fully offset the yield on advances and hence, NIM will contract marginally sequentially, reinforcing the broader view that margin compression, though limited, is inevitable this quarter.
Asset quality
On the asset quality front, the outlook appears constructive. Brokerages expect a moderation in stress after a seasonally weaker December quarter. Systematix said slippages are expected to decline sequentially after higher seasonality linked slippages in the December quarter.
Nomura echoed a similar trend, saying that slippages are expected to decline and credit costs would see some moderation. However, Motilal Oswal Financial Services said slippages should ease in the absence of agriculture slippages and expects credit costs to decline.
Kotak has pencilled in some residual stress, estimating slippages of ₹5,000 crore in the March quarter, led mostly by retail. It expects commentary on asset quality outlook likely to be positive.
Another key focus area will be liquidity. Analysts have flagged LCR as an important monitorable after the bank reported an average LCR of about 116% in the December quarter. According to Nomura, investors should watch out for LCR levels in Q4.
On profitability, fee income is expected to track business growth. Systematix expects fee income to be higher, in line with advances growth, while operating expenses are likely to remain stable sequentially, supporting overall earnings.
Beyond the quarter, management commentary will be critical in shaping sentiment. Despite near-term margin headwinds, the longer-term investment case remains intact.
“Within the universal banking space, we continue to maintain Axis Bank as our top pick, supported by relatively undemanding valuations and an attractive risk-reward profile,” Centrum Broking said.