Axis Bank shares slide 2.4% post Q4 results; what should investors do?

Global brokerage Jefferies has initiated coverage on Axis Bank stock with a target price of Rs 1,150

Axis Bank Q4 result review: A higher-than-expected net loss by Axis Bank in the January to March quarter (Q4) of financial year 2022-23 (FY23) sent its shares nosediving 3 per cent on the BSE in Friday's intra-day trade.
 

The stock of the Mumbai-based lender, however, closed 2.36 per cent lower at Rs 860 apiece as against 0.76 per cent gain in the benchmark S&P BSE Sensex, and 0.39 per cent rise in the S&P BSE Bankex index. 
 

That said, despite the Rs 5,728.42-crore net loss in Q4FY23 (vs Bloomberg's estimate of Rs 2,531.60-crore net profit), analysts remain bullish on the lender as it is running several transformational initiatives, targeting the sustainability of the growth.

 

"The bank has acquired one of the best premium retail franchises in India, and strong execution here should bear healthy rewards in the form of healthy net interest margins (NIMs), better fee, and step-up in return on equity (RoE) FY25 onwards. While Axis Bank has reasonable common equity tier-1 (CET-1) at 14 per cent, and strong internal accrual, we believe it could look to raise capital, which should propel even stronger growth," said analysts at ICICI Securities led by Jai Prakash Mundhra.
 

Here's a low down of how key brokerages assess the results:
 

Jefferies | Initiate with Buy |Target price (TP): Rs 1,150

While one-time write-off of goodwill and costs for Citi acquisition led to a loss in Q4FY23, there is scope for better growth ahead due to strong core results. We raise profit estimates by 2-3 per cent, and see scope for valuations to re-rate. 

BNP Paribas | Buy | TP: Rs 1,140 (unchanged)

CASA ratio was up sharply by 216bps YoY/262bps QoQ to 47.2 per cent on account of 18 pe cent QoQ growth in CASA deposits (materially bumped up by the Citi CASA acquisition). We believe maintenance of this CASA accretion remains critical as Axis Bank's liability franchise, though robust, lags the best-in-class by some distance.

Emkay Global | Buy | TP: Rs 1,225 

Lower loan yields/higher cost of finance (CoF) led to a slight contraction (4bps) in NIM QoQ at 4.2 per cent. This, coupled with higher opex, led to a slight miss on core profitability.
 

However, lower loan loss provisions (LLP) led to a beat on net profit (ex-Citi one-off) at Rs 7,800 crore. We have trimmed our earnings estimates for FY24/25E by 1-3 per cent. 

 

Nuvama Institutional Equities | Buy | TP: Rs 1,100 (vs Rs 1,150 earlier)

We believe Citi contributed Rs 18.3 crore to net interest income (NII) worth Rs 11,742 crore in Q4FY23. Ex-Citi and one-offs, standalone NII grew 1 per cenr QoQ based on our calculation while standalone assets grew 4.5 per cent QoQ. 
 

Despite strong growth in higher-yielding retail loans and an increase in external benchmark based lending rate (EBLR), the yield on loans did not rise. Consolidated yield on loans rose 13bp QoQ, while we calculate that standalone yield was flat QoQ, which is a negative surprise.
 

Standalone operating expenditure (opex) rose sharply by 7 per cent QoQ. Consolidated core fees grew 14 per cent QoQ, while estimated standalone fees grew 12 per cent QoQ. Consolidated core PPOP remained flat QoQ, while standalone declined 1 per cent QoQ, 5 per cent lower than consensus.
 

With too many merger adjustments, and miss on core earnings, Axis Bank reported a weak quarter. We see pressure on opex from Citi’s integration, and pressure on NIM from higher CoF.
 

JM Financial | Buy | TP: Rs 1,075 (vs Rs 1,120 earlier)

Axis Bank's transformation is in the right direction with sustaining loan growth momentum, improvement in liabilities profile, robust asset quality resulting in low credit costs, and steadily improving return profile. 
 

Delivery on the loan growth momentum and sustenance of NIMs will be critical factors which can drive the rerating for the stock.

 

Elara Capital | Buy | TP: Rs 1,097 (unchanged)

On core basis (ex-Citi merger), Q4 was a mixed bag. While on one hand better business momentum improved loan growth 7 per cent QoQ and deposit growth at 7 per cent QoQ, on the other hand pressure on NIMs fed into lower NII, quarterly average balance savings growth was lower (exCiti) and growth in secured retail segments was softer.
 

While performance in the past few quarters enabled Axis Bank to converge with frontline banks' performance, Q4 was probably softer than peers. 
 

Prabhudas Lilladher | Buy | TP: Rs 1,140 (vs Rs 1,100 earlier)

The Bank would like to maintain margins, and levers to sustain current NIM are RIDF (rural infrastructure development fund) reduction YoY from 3.5 per cent to 2.3 per cent, and shift to higher yielding products.
 

Incremental opex was attributable to volume (28 per cent), technology (34 per cent), Business-As-Usual (22 per cent), and integration (16 per cent). 
 

To expand reach, branch expansion pace would increase in FY24/25. Hence, achieving a target of 2 per cent opex to assets by FY25E, could be delayed. We increase opex costs for FY24/25 by average 4 per cent and lower PAT by 2.3 per cent.
 

Kotak Institutional Equities | Buy |TP: Rs 1,100 (unchanged)

The capital consumption cycle suggests that there is no need to raise capital immediately. It would not act as a constraining factor for growth in FY24-25. Macro risks remain, which are mostly on the NIM journey hereon and the current wedge that exists between deposit and loan growth for the sector. We are building this by factoring a lower NIM for FY24. 
 

We don’t see material risk to our earnings forecast, as we are conservative on some of the key variables such as NIM and loan growth. The ability to converge its valuation multiples with the frontline banks such as ICICI Bank and HDFC Bank would require the bank to give greater comfort on deposits, cost of deposits and consistent loan growth.