Axis Bank Q2 preview: Profit may rise over 40% YoY on low provisions

Analysts said progress of the Citi portfolio, direction of operating profit growth, and credit growth amid slowdown concerns will be tracked by investors

Axis Bank Q2 preview: Axis Bank, which is slated to report its September quarter (Q2) result for fiscal 2022-23 (FY23) on Thursday, October 20, is expected to post net profit growth of over 40 per cent year-on-year, brokerages noted. On a quarterly basis, it could see an improvement of at least 8 per cent. That apart, net interest income (NII), they projected, may rise nearly 25 per cent YoY.

In the year-ago quarter (Q2FY22), Axis Bank had reported net profit of Rs 3,133.3 crore, operating profit of Rs 5,928.2 crore, and NII of Rs 7,900.3 crore. It's net interest margin (NIM) was around 3.3 per cent. Sequentially, PAT stood at Rs 4,125.3 crore in Q1FY23, PPoP at Rs 5,887 crore, and NII at Rs 9,384 crore.

Key monitorables

Analysts said progress of the Citi portfolio, direction of operating profit growth, guidance/outlook on restructured loans and BB & below asset pool, and credit growth amid slowdown concerns will be tracked by the investors.

Here's what key brokerages pencil for Axis Bank's Q2FY23 result:

Prabhudas Lilladher

The brokerage expects NII growth of 26.7 per cent YoY and  6.7 per cent QoQ, at Rs 10,012.4 crore, as rate hikes would have been passed on to customers. NIM, therefore, is seen at 4.14 per cent.

Further, net profit is seen 53.4 per cent YoY higher at Rs 4,778 crore on the back of lower provisions at Rs 615 crore (vs Rs 1,735.1 crore in Q2FY22), and higher other income. Pre-provision profit (or operating profit), meanwhile, is pegged at Rs 6,985.6 crore, up 18 per cent on year. On a quarterly basis, this would be an increase of 16 per cent in PAT, and 19 per cent in PPoP.

ICICI Securities

It expects advances (loan book) to grow 3-4 per cent QoQ, and 17-18 per cent YoY to Rs 7.33 trillion aided by sustained focus towards secured retail segments, better-rated mid-corporate and tech-driven  transformation initiative 'Sankalp' for MSME. This, it said, could be largely in-line or a tad below peers.

Deposits, meanwhile, are pegged at Rs 8.27 trillion, up 12 per cent YoY, and 3 per cent QoQ. Considering this, NII is projected at Rs 9,848.1 crore, up 25 per cent YoY, and 5 per cent QoQ.

"Credit-to-deposit (C/D) ratio is expected to inch up as deposit growth is likely to lag advances growth, thereby supporting margins at 3.6 per cent. Operating expense growth to continue at 4 per cent QoQ, resulting in 17 per cent YoY growth. Absence  of treasury hit to support 19-20 per cent operating profit growth," the brokerage said. In absolute terms, PPoP is pegged at Rs 7,076.7 crore, and net profit is seen at Rs 4,462.2 crore.

As regards asset quality, it expects slippages to be around 2.3 per cent, and credit  cost run-rate to normalise to 60-65bps. Also, there could be higher recoveries, and upgrades QoQ which should result in lower gross non-performing asset (GNPA) ratio QoQ at 2.7 per cent (vs 2.8 per cent in Q1FY23, and 3.5 per cent YoY).

JM Financial

The brokerage has one of the most optimistic estimates with net profit seen rising 68 per cent YoY to Rs 5,270 crore. NII is anticipated to increase by 33 per cent YoY, and 12 per cent QoQ to Rs 10,499.7 crore, while PPoP is pegged at Rs 7,776.9 crore, higher by 31 per cent YoY, and 32 per cent QoQ.

It expects loan growth of 20 per cent on year, and deposit growth of 13.5 per cent YoY. Credit costs could rise to 0.4 per cent from 0.2 per cent QoQ. On a yearly basis, it may fall from 1.12 per cent.

Motilal Oswal Financial Services

At the lower end of the projection spectrum stands this brokerage, with PAT pegged at Rs 4,240 crore, up 35 per cent YoY. It expects PPoP to rise just 15 per cent on year to Rs 6,800 crore, and NII 23 per cent at Rs 9,740 crore.

It expects GNPA ratio to come in at 2.7 per cent, NNPA at 0.6 per cent, and provision coverage ratio at 77 per cent.

Kotak Institutional Equities

The brokerage expects loan growth at 17 per cent YoY with a greater focus on retail, and SME. NIM, it said, could improve QoQ, led by higher lending yields. Operating profit is anticipated to grow at 22 per cent YoY at Rs 7,235.2 crore, primarily due to lower  treasury income (Rs 120 crore vs Rs 473 crore YoY), and normalization of operating expenses. Net profit is seen up by 46.4 per cent YoY, and 11.2 per cent QoQ at Rs 4,587 crore.

"We expect slippages of Rs 3,500 crore (~2 per cent of loans) mostly led by small-ticket loans. We expect strong commentary on asset-quality performance, and we see an improvement in NPL ratios, aided by stronger recovery/upgrades. Provisions are mainly to reduce net NPL ratios," it said.