Axis Bank Q1 Results Review - Weak Quarter Due To Asset Quality Drag: Prabhudas Lilladher

Prabhudas Lilladher Report

Axis Bank Ltd. saw a weak quarter as core profit after tax was 13.2% below our estimate driven by asset quality blip leading to rise in provisions QoQ by 37 basis points, miss on fees by 3.8% and higher opex.

Loan growth was better, mainly led by corporate and deposit growth QoQ was driven by wholesale. Adjusting for IT refund impact of 6 bps, net interest margin improved by 8 bps QoQ to 4.03%.

We don’t see any further leeway for NIM to expand since loan to deposit ratio is at 92% (+194 bps QoQ). While management attributed the rise in gross non-performing asset and provisions to timing difference leading to protracted recoveries and higher write-offs, net slippages spiked QoQ from 55 bps to 136 bps largely led by retail (including agri).

Axis Bank's credit costs in remaining quarters of FY25 could normalise as recoveries improve. Due to lower recoveries for the system, we increase credit costs for FY25/26E by 12bps each to 55bps and cut core EPS by average 5%.

We maintain multiple at 2.2 times and but due to earnings cut, we slightly reduce target price to Rs 1,425 from Rs 1,450. Retain ‘Buy’.

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