Axis Bank Q1 Review - High Provisions Drag Earnings; Elevated C/D Ratio To Suppress Loan Growth: Motilal Oswal

Motilal Oswal Report

Axis Bank Ltd. reported a net profit of Rs 60.3 billion (+4% YoY; 6% miss) in Q1 FY25. The miss was due to higher provisions. Net interest income grew 12% YoY and 3% QoQ to Rs 134.5 billion (inline). Net interest margin moderated 1 bp QoQ to 4.05%, displaying continued resilience.

Provisioning expenses were Rs 20.4 billion (sharply higher than our estimate), thus leading to the 6% miss at the profit before tax level.

Axis Bank's ;oans grew 14% YoY (2% QoQ). Deposits grew 13% YoY (-1% QoQ), thus resulting in further increase in the credit/deposit ratio to 92%. Current account and savings account mix stood at 42%.

Fresh slippages came in at Rs 47.93 billion (versus Rs 39.9 billion in Q1 FY24). Gross / net non-performing asset ratios thus increased 11 bp/3 bp QoQ to 1.54%/0.34%. Provision coverage ratio stood broadly stable at 78%. About 55% of the rise in credit costs is attributed to lower recoveries in the corporate portfolio this quarter.

We cut our earnings estimates by 5.6%/7.8% in FY25/26, as we moderate our growth assumptions and build in higher credit costs. We thus estimate FY26E return on asset/return on equity of 1.7%/16.2%. Reiterate Neutral with a revised target price of Rs 1,175 (based on 1.7 times FY26E adjusted book value).

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