Axis Bank Q3: Profit may jump up to 83% YoY; asset quality could take a hit

Limited Covid-19 provisioning in the quarter may shore up profit of Axis Bank, analysts at Edelweiss Securities said in their result preview report

Axis Bank Q3 Preview: Cost control, modest loan growth, and low previous year base may aid Axis Bank to report healthy set of numbers for the December quarter of FY21 (Q3FY21). The lender, which is scheduled to report the Q3 results on Wednesday, January 27, had clocked a net profit of Rs 1,756.9 crore in Q3FY20, and of Rs 1,682.7 crore in the September quarter of FY21 (Q2FY21).
 

During the quarter under review, the stock price of the Mumbai-based lender has outperformed the benchmark Nifty50 index on the National Stock Exchange. The stock advanced 46.1 per cent in the December quarter, as against a 24-per cent rise in the Nifty50 index, ACE Equity data show. Nifty Bank index, too, grew 45.7 per cent during the period.
 

Here's what leading brokerages expect:

Kotak Institutional Equities

The brokerage expects the bank to post a PAT of Rs 3,210.8 crore during the quarter under review, clocking a massive 83 per cent YoY, and 91 per cent sequential jump. The pre-tax profit (profit before tax or PBT) is seen at Rs 4,309.8 crore, a growth of nearly 90 per cent on year from Rs 2,271.7 crore; and of 86 per cent QoQ from Rs 2,317 crore reported in Q2FY21.
 

“We expect loan growth at 7 per cent YoY with greater focus on retail. That apart, net interest margin (NIM) is expected to stay unchanged QoQ at 3.6 per cent (led by loan composition and lower funding costs). We expect operating profit growth at 11 per cent YoY, at Rs 6,390.5 crore, led by better cost controls,” it said in a pre-earnings report.
 

Sharekhan

Analysts at the brokerage, too, expect an 11 per cent YoY jump in operating profit for the quarter under review. This, however, would be a de-growth of 7.7 per cent on a sequential basis from Rs 6,897.6 crore reported in Q2FY21. In the year-ago period, operating profit stood at Rs 5,742.6 crore. 
 

Net interest income (NII), meanwhile, is pegged at Rs 7,538 crore, up 17 per cent YoY and 3 per cent QoQ from Rs 6,452.9 crore and Rs 7,326.1 crore, respectively.
 

IDBI Capital

IDBI Capital expects advances and deposits to clock a growth at 9 per cent YoY each. However, it projects a 5.3 per cent YoY growth in PAT at Rs 1,850.6 crore. 
 

The brokerage would watch out management’s commentary on asset quality in H2FY21, and on restructuring of accounts.

Motilal Oswal Financial Services
Including a 14.7 per cent year-on-year growth in NII at Rs 7,400 crore, MOFSL projects the lender’s total revenue at Rs 11,460 crore for the quarter under review. Adjusting for operating expenses, operating profit is pegged at Rs 6,830 crore, up nearly 19 per cent YoY.

However, owing to higher provisions, the brokerage expects the bank’s PAT to decline 14.6 per cent on year to Rs 1,500 crore.

The provisions are seen at Rs 4,830 crore for Q3FY21, up from Rs 3,470.9 crore set aside in Q3FY20, and Rs 4,580.7 crore in Q2FY21.
 

“Credit cost may stay elevated, and the bank could guide for higher slippages… We would track the bank’s restructuring requests, and assets under ‘BB’ & below-rated category… Margins may decline 8bp QoQ to 3.5 per cent,” it said in a report.

It expects the private lender’s gross NPA (GNPA) ratio to rise to 5 per cent from 4.2 per cent reported in Q2FY21. NNPA is seen at 1.4 per cent, up from 1 per cent in the September quarter of FY21.
 

Edelweiss Securities

The brokerage expects loan momentum to improve as compared to last quarter, while is sees retail deposits growth to be steady. It would, however, monitor traction on corporate deposits.
 

“On asset quality front, restructuring proportion will be limited and collections in different segments need to be monitored. Limited Covid-19 provisioning in the quarter will shore up profit,” it said in an earnings preview report.