Axis Bank Q1 Results Review: Fast Growth In Unsecured Loans Should Be Monitored, Say Analysts

Axis Bank Ltd. continues to grow its unsecured book at a faster pace, which must be monitored as it is witnessing early signs of stress emerging in the segment, according to brokerages.

The private sector lender's net profit rose 4% to Rs 6,034.6 crore in the first quarter of the current financial year, missing analysts' estimates as provisions doubled. Asset quality worsened as the gross non-performing-asset ratio increased 11 basis points sequentially to 1.54%. The Net NPA ratio also rose to 0.34% on a quarter-on-quarter basis.

"Within retail, the bank continues to grow its unsecured book at a faster pace," Emkay Global Financial Services Ltd. said in a note. "Hence, we believe this should be watched, given the noise on the rising stress."

"The bank is witnessing early signs of stress emerging in the unsecured segments and has accordingly taken proactive steps against the same," Nirmal Bang said.

• Retains a 'buy' rating on the stock and lowers target price to Rs 1,430 apiece from earlier Rs 1,500, implying a potential upside of 15% from the previous close.

• Credit cost rose to 1% even though slippage ratio fell 5 basis points year-on-year due to lower recoveries and higher provisions on unsecured loans

• The loan-to-deposit ratio rose to 92% from 90% sequentially amid the RBI’s concerns on high LDRs.

• Citi integration expenses appear to be done in Q1.

• The operating-expense walk shows a significant decline in tech-related, integration cost, while volume-linked opex has risen.

• Credit cost rose sharply despite fall in slippage ratio on lower recoveries and higher provisions for unsecured non-performing loans due to the bank's 90-day write-off policy, compared to 120 days for most peers.

• Retains 'buy' with a target price of Rs 1,400 apiece.

• Sluggish credit growth at 14% year-on-year, mainly due to a slowdown in the SME and retail growth, and partly offset by some acceleration in the corporate book

• Deposit growth at 13% year-on-year, mainly due to slowdown in the current account savings accounts, leading to an uptick in the LDR to 92%

• Expects the bank to report a return on assets of approximately 1.8%.

• Macro-dislocation, rising stress in unsecured loans leading to slower-than-expected growth/higher NPAs, key management personnel attrition and extension of the managing director's term remain key things to watch.

• Maintains an ‘outperform’ rating on the stock and a target price of Rs 1,250 apiece, implying a potential upside of 1% from the previous close.

• Lowers operational expenses growth to offset credit-cost normalisation.

• Estimates an increase in credit cost by 10–15 basis points for the next two years.

• Marginally reduces the opex growth by about 1% for fiscals 2025 and 2026.

• Lesser than 2% impact on earnings per share in fiscals 2025 and 2026.

• Revises rating to 'accumulate' from 'buy' with a target price of Rs 1,325 apiece, implying a potential upside of 7%.

• Higher-than-expected credit costs at 83 bps even though earnings impact was limited, led by lower other opex and one-time interest on IT refund.

• The NIM at 4.05% was stable quarter-on-quarter as impact of interest reversals from higher slippages was offset by one-time interest on IT refund

• Expects credit costs at 60–65 bps over FY25-26.

• Asset quality during the quarter was impacted both higher slippages at 2% and moderation in recoveries

• Increase in gross slippage was partly led by corporate book of less than Rs 100 crore ATS.

• Weaker-than-anticipated macro-economic trends could adversely impact growth and asset quality.

• Over the medium to long term, the bank remains confident of delivering advances growth in excess of 300–400 bps compared to industry growth

• Management indicated some stress build-up in retail unsecured personal loan segment. However, the same is not a matter of concern as it has not breached the bank's risk level

• Expect bank to have average RoA of 1.8% and RoE of 17% over FY24-26, assuming 13.9% loan CAGR

• Expect stable NIM, improving cost ratios and upward normalisation in credit costs

• Maintain 'buy' with an unchanged target price of Rs 1,485 apiece.

On the NSE, Axis Bank's stock fell as much as 6.23% to Rs 1,162.05 apiece, the lowest since June 5. It was trading 6.2% lower at Rs 1,163 per share, compared to a 0.7% decline in the benchmark Nifty at 9:47 a.m.

The share price has risen 5.6% on a year-to-date basis and 22.1% in the last 12 months. The total traded volume so far in the day stood at 1 time its 30-day average. The relative strength index was at 29, indicating that the stock may be oversold.

Forty-one out of the 48 analysts tracking the company have a 'buy' rating on the stock and seven recommend 'hold', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 17%.