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Prabhudas Lilladher Report
Axis Bank Ltd. saw a good quarter; although core profit after tax was a miss due to higher opex, net interest income was 3% ahead to our estimate leading to net interest margin at 4.17% (beat by 17 basis points).
Axis Bank’s NIM boost was driven by-
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strong QoQ growth in higher margin segments of personal loan, credit card and small busines banking,
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deliberate slowdown in housing,
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6% QoQ fall in liquidity coverage ratio and
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lower deposit growth of 0.6% QoQ resulting in higher loan-to-deposit ratio.
Registered Transferable Deposit growing by 4.5% QoQ was another positive. Balance sheet construct is being calibrated towards higher margin segments and granular deposits which could slightly affect loan growth. However, this should bode well over medium term from a profitability perspective.
CITI integration costs and business investments would keep opex elevated. For FY24/25E we raise NIM and opex while reduce provisions resulting in ~3% profit after tax upgrade.
With likely return on asset of 1.7% for FY25E, valuation discount to ICICI Bank Ltd. (27%) should narrow. We maintain multiple at 2.2 times but raise target price to Rs 1,170 from Rs 1,140. Reiterate ‘Buy’
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