Axis Bank’s Q2 margin strong; shares at a new high mirroring the optimism

Axis Bank’s Q2 margin strong; shares at a new high mirroring the optimism (MINT_PRINT)
Axis Bank’s Q2 margin strong; shares at a new high mirroring the optimism (MINT_PRINT)

Summary

  • Axis Bank’s management said that NIMs will be maintained at current levels led by improvement in business mix, higher yields and asset repricing.

Shares of Axis Bank Ltd rose more than 8% intraday on Friday on the National Stock Exchange, also hitting a new 52-high of 895.70 apiece. Investors are visibly thrilled with the bank’s good set of numbers for the quarter ending September (Q2FY23). Margin improvement has been a key highlight in Q2 results.

Bank’s net interest income (NII) rose by 10% sequentially and 31% year-on-year (y-o-y). Net interest margin (NIM) expanded by 36 basis points (bps) sequentially to 3.96% in Q2. One basis point is 0.01%. NII improvement was aided by strong growth in loans which grew by 18% (y-o-y). Retail and SME grew at a healthy rate of 22% and 28% respectively. Retail loan has the highest share in total loan book which is 58%, followed by SME at 11% and corporate at 31%.

“Strong NIM expansion and low credit costs drive us to raise FY23 earnings by 14% and FY24-25 by 7%," said analysts from Jefferies India in a report on 21 October.

Axis Bank’s management said that NIMs will be maintained at current levels led by improvement in business mix, higher yields and asset repricing.

On the flip side, lagging deposit growth is an area of concern. Deposit growth stood at 10% y-o-y mainly due to muted growth in retail term deposits as it contributes the highest share in total deposits (37%). “The bank will need to accelerate deposit growth in H2, for supporting higher credit growth which it has managed till now, by utilizing excess liquidity on the balance sheet and running down the investment book," said analyst at Emkay Research. They further added sustainability of margins at the current high levels will be slightly testing.

Meanwhile, there is comfort on the asset quality front with Axis Bank’s gross non-performing assets (NPA) and net NPA ratios declining by 26bps and 13 bps sequentially to 2.50% and 0.51%, respectively, in Q2. Slippages moderated at 3,383 crore versus 3,684 crore in Q1. Further, the bank’s restructured book continued its downward trend and fell to 0.38% of loans from 0.45% in Q1. Bank provisional ratio coverage (PCR) stood at 80% in the current quarter.

“With high PCR and a strong balance sheet, the bank can absorb shocks from any unanticipated future risk. We believe its valuations are reasonable, given structural improvement visible in the franchise and provides an attractive risk-reward," said analysts at Sharekhan.

The sharp jump in Axis Bank’s shares post Q2 results suggests investors are factoring in some of the optimism.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
more

MINT SPECIALS