Axis Bank shares rally over 5% after Q2, but analysts cautious on outlook

Axis Bank share price: Brokerages have cut their earnings forecast by up to 5 per cent over FY25-27 to factor in Q2 results

Axis Bank Q2 results, share price target: Despite a subdued September quarter (Q2) results for the current financial year 2024-25 (FY25), Axis Bank share price rallied as much as 6.3 per cent intraday today.
 

The stock hit an intraday high of Rs 1,203.7 per share on the BSE, before settling 5.6 per cent higher at Rs 1,195.7 per share,  as analysts see limited valuation downside in the stock from current levels. By comparison, the benchmark BSE Sensex closed 0.27 per cent higher.
 

Brokerages, however, have cut their earnings forecast by up to 5 per cent over FY25-27, and trimmed Axis Bank share price target marginally, to factor in Q2 results.
 

 

Axis Bank Q2: Hits and Misses

Axis Bank, analysts said, reported a mixed set of earnings for the recently concluded quarter. Its net profit, which largely beat estimates, was aided by a one-time tax provision reversal (worth Rs 550 crore) and stood at Rs 6,918 crore against Rs 5,864 crore in the year-ago period.
 

The lender's loan growth, too, slowed to 11 per cent year-on-year (Y-o-Y) compared to the 14-per cent growth seen in Q1FY25.  
 

On a quarter-on-quarter (Q-o-Q) basis, loans were up barely 2 per cent with retail up 2 per cent Q-o-Q, small and medium enterprises' (SME) loans up 6 per cent, and corporate loans staying flat Q-o-Q.
 

On the liabilities side, deposits rose 13.7 per cent Y-o-Y and 2.3 per cent Q-o-Q. Given this, the bank's current account-savings account (CASA) mix moderated 100bp Q-o-Q to 41 per cent.  
 

"Axis Bank believes FY25 credit growth will be anchored by deposit growth/loan-deposit ratio, which still remains a challenge. However, medium-long term credit growth will be 300-400bps higher than the system. Thus, we cut our FY25 credit growth estimates to 12 per cent from the earlier 14 per cent and slash our earnings estimates by 1-4 per cent over FY25-27," Emkay Global said in its report.
 

The brokerage, however, retained its 'Buy' rating with an unchanged share price target of Rs 1,400.
 

Operationally, Axis Bank's core net interest income (NII) -- excluding one-off interest of Rs 220 crore on tax refunds reported in Q1FY25 -- grew 2 per cent Q-o-Q. Core net interest margin (NIM) stayed flat Q-o-Q at 3.99 per cent.
 

Axis Bank asset quality brings relief

That said, Axis Bank saw an improvement in its gross non-performing asset (GNPA) ratio, which stood at 1.54 per cent, down 10bps Q-o-Q, owing to higher write-offs. NNPA was flat at 0.34 per cent. Total recoveries improved from Rs 1,500 crore to Rs 2,000 crore Q-o-Q.  
 

Axis Bank management said Q2 FY25 saw elevated stress in the unsecured loans segment, but eyes improvement in H2FY25. Moreover, in addition to the existing contingent provision of Rs 5,000 crore, the bank further made additional contingent provision of Rs 520 crore.

 

Total provisions, thus, stood at Rs 2,204 crore in Q2 FY25, compared to Rs 815 crore in Q2 FY24, and Rs 2,039 crore in Q1 FY25.
 

Nuvama Institutional Equities has maintained its 'Buy' rating on the stock, seeking comfort from improved asset quality, but cut its share price target to Rs 1,335 (2x BV FY26E) from Rs 1,430 earlier.  
 

"We trim NII estimates by 1.2 per cent for FY25 and 2.7 per cent for FY26. Net profit estimate also stands reduced by 2.1 per cent and 2.7 per cent for the respective years," it added.
 

Key monitorables

Analysts said they will eye Axis Bank's near-term growth amid still elevated loan-deposit ratio; macro-dislocation; and any potential rise stress in unsecured loans leading to slower-than-expected growth/higher NPAs.
 

That apart, senior management attrition, and MD term extension (expiring in Dec-24) will be tracked.  
 

"We had downgraded the stock in January 2024. We now believe that while the current valuation looks comforting after a significant underperformance, the watchful stance on several key metrics will limit near-term stock performance," Motilal Oswal Financial Services said with a 'Neutral' rating and a share price target of Rs 1,225.
 

ICICI Securities, too, has cut FY25 and FY26 PAT estimates by around 2 per cent and 5 per cent on lower loan growth estimates and higher credit costs. It has maintained its 'Buy' rating with a lower target price of Rs 1,350 (Rs 1,430 earlier)