Axis Bank share price sinks 8% post Q1FY25 results shocker; time to buy?

Axis bank share price: While Axis bank Q1 results were sub-par, Street remains "cautiously optimistic" on stock outlook

Axis Bank share price target: Axis Bank’s disappointing results in the first quarter of the current financial year (Q1FY25) have not undeterred analysts who remain “cautiously optimistic” about the stock.

Their optimism stems from a largely “seasonal” deterioration in the asset quality of the lender which may reverse in the medium term. As a strategy, they suggest, investors ‘add exposure’ to the stock amid the recent correction.

“Amid the current challenging environment regarding deposits, we believe Axis Bank's liability franchise continues to improve gradually and should hold it in good stead in the medium term,” analysts at JM Financial said with a ‘buy’ rating.

They said investors should utilise any meaningful correction to add exposure to the stock as the sustainability of net interest margin (NIM), moderation in operating expenditure, and control in credit costs should help Axis Bank sustain its outperformance. The brokerage has increased the stock target price to Rs 1,375 from Rs 1,330.

On the bourses, Axis Bank’s share price tanked 8.3 per cent to Rs 1,156 per share on the BSE in Thursday’s intraday trade. It was also the top laggard on the BSE Sensex and NSE Nifty indices.

The sharp sell-off in Axis Bank shares came as the private lender set aside provisions and contingencies worth Rs 2,039 crore in Q1FY25, compared to Rs 1,185 crore in Q4FY24 and Rs 1,035 crore in Q1FY24. Loan loss provisions also more-than-doubled yearly and were up 3 times sequentially to Rs 2,551 crore.

 

On the asset quality front, Axis Bank’s gross net-performing asset (GNPA) ratio worsened to 1.54 per cent, up 11 basis points (bps) sequentially. Similarly, NNPA ratio moved up 3 bps sequentially to 0.34 per cent.

Further, as the loan book expanded 14 per cent year-on-year (Y-o-Y) (2 per cent Q-o-Q), and deposits 13 per cent Y-o-Y (down 1 per cent Q-o-Q), the Mumbai-based bank’s loan-to-deposit ratio (LDR) inched up to 92 per cent in Q1FY25 from  90 per cent in Q4FY24. Axis Bank reported an unchanged NIM of 4.05 per cent, aided by a one-time tax refund. Adjusted for the same, NIM for the quarter was 3.99 per cent versus 4.06 per cent Q-o-Q.

Analysts, however, said the deterioration in asset quality across some parts of the book, such as retail unsecured, was not a concern as of now as the bank’s internal risk benchmarks have not been breached.

Besides, the management attributed 55 per cent of the credit cost (0.97 per cent in Q1FY25) to the timing differences in recognition/recovery of NPAs which, it believes, should ease in the ensuing quarters. The trend is also not indicative of the credit cost expected for full-year FY25, the management added.

Overall, Axis Bank reported a net profit of Rs 6,035 crore in Q1FY25, up 4 per cent Y-o-Y, but down 15 per cent sequentially.

“While it is quite likely that investors could look to step away from the stock for some time until we can crystallise the size of the (slippage) problem, any weakness in the stock price should be used as a reason to turn more constructive,” said analysts at Kotak Institutional Equities.

Call for near-term caution

The aggression on deposits may sustain with LDR rising sequentially amid the Reserve Bank of India's (RBI’s) discomfort with system-wide worsening of credit-deposit, coupled with systemic challenges on deposits.

Axis Bank, thus, will have to balance NIM, deposit growth, and LDR which could be onerous on earnings in the near term and may brew near-term dislocations, analysts cautioned.

“Factoring in the Q1FY25 miss amid rising noise on unsecured loans and thus loan-loss provisions, we cut FY25-27E earnings by 3 per cent. The bank will also raise equity capital worth Rs 20,000 crore, which should keep the return on equity (RoE) in check,” said Emkay Global with a ‘buy’ rating and a target price of Rs 1,400.

Motilal Oswal Financial Services, too, has cut earnings estimates by 5.6 per cent and 7.8 per cent in FY25 and FY26, respectively, as it moderates its growth assumptions.