Axis Bank extends gain on strong Q2 results; stock surges 18% in 6 days

Axis Bank was up 4% to Rs 633, the largest gainer among Nifty50 and the S&P BSE Sensex index, at 10:40 am.

Shares of Axis Bank are up 4% to Rs 633, extending their previous week’s 14% rally on the BSE.

The private sector lender posted a better-than-expected 83% year-on-year (Y-o-Y) jump in  its net profit at Rs 7.90 billion in the September quarter (Q2FY19), boosted by higher interest income and improvement in asset quality. Analysts on an average, expected profit of Rs 6.64 billion for the quarter.

The bank’s net interest income (NII) grew 15% Y-O-Y to Rs 52.32 billion during Q2FY19 from Rs 45.40 billion in Q2FY18. NIM during the quarter under review stood at 3.36% against 3.46% in Q1FY19, which includes around 17 bps as the impact of interest realization from recovery on IBC List 1 account, Axis Bank said in a statement.

Slippages were at Rs 27.8 billion with corporate slippages at Rs 10.9 billion and predominantly from BB & Below book which is now 1.7% of assets (from 2.1% in Q1FY19). This led GNPAs and NNPAs to come off by 60bps QoQ to 5.96% and 2.54% respectively.

With the base effect playing out in H2FY19 (October-March), we expect loan growth to revert back to healthy levels. Tier 1 capitalization is at around 13%, which should provide enough capital for growth, according to Motilal Oswal Securities.

We believe that balance sheet clean-up should get over and earning should return to normalcy in H2FY19 and that warrant conversion, should provide additional capital to support growth thereafter, the brokerage firm said in result update with maintaining ‘buy’ rating on the stock and target price of Rs 750 per share.

“Highlight of the quarter was continued lowered slippage of Rs 27.8 billion (annualized 2.5% of loans v/s 3.9% in Q1FY19) and decent recovery/upgrades helping improve overall asset quality and reducing stress levels. The bank is also continuously improving its PCR, especially on NCLT a/c at around 90%,” according to analysts at Prabhudas Lilladher.

“Going ahead, power resolutions will be important (large part of BB & Below) to drive asset quality, but despite that, we will see gradual improvement in core operations as credit cost normalized, positive bias on NIMs and improving loan growth. We revise our target price to Rs 681 (from Rs 624) based on 2.3x Sep-20 ABV (from 2.4x Mar-20 ABV),” the brokerage firm said in result update.

At 10:40 am, the stock was trading 3.3% higher at Rs 630 on the BSE, as compared to 0.19% decline in the S&P BSE Sensex. The stock was the largest gainer among Nifty 50 and the S&P BSE Sensex index. A combined 12.27 million equity shares changed hands on the counter on the BSE and NSE so far.