Axis Bank sinks 6% in sharpest fall in 5 months; Motilal downgrades stock

MOFSL said an elevated CD ratio will constrain credit growth, while continued re-pricing of deposits will likely exert pressure on margins in the coming quarters.

Shares of Axis Bank slipped 6 per cent to Rs 1,020.85 on the BSE in Wednesday’s intra-day, its sharpest intra-day fall in past five months, after the bank’s net interest margin declined 10 bps sequentially and 25 bps year-on-year (YoY) to 4.01 per cent in December quarter (Q3FY24). The management suggested that funding costs will continue to inch up over the next two quarters.

Earlier on August 28, 2023, the stock price of private sector lender had declined 6.3 per cent. At 09:33 AM; Axis Bank was quoting 4 per cent lower at Rs 1,044.90, as compared to 0.04 per cent rise in the S&P BSE Sensex. It had hit a record high of Rs 1,151.50 on December 5.

Axis Bank reported a 4 per cent YoY increase in its net profit at Rs 6,071 crore for Q3FY24, even as the rise in the cost of funds impacted margins. Profit growth driven by healthy other income, which was partly offset by an increase in provisions due to Alternative Investment Funds (AIF)-related provisioning. Net Interest Income grew 9 per cent YoY and 2 per cent quarter-on-quarter (QoQ) to Rs 12,532 crore.

The bank reported improvement in asset quality with gross NPA and net NPA levels at 1.58 per cent and 0.36 per cent respectively, as against the 1.73 per cent and 0.36 per cent as of September 30, 2023.

Axis Bank delivered in-line earnings in Q3FY24, characterised by a recovery in business growth. However, NIMs moderated 10bp QoQ. Provisions were high partly due to AIF-related provisioning, though overall asset quality remained healthy, said Motilal Oswal Financial Services (MOFSL).

The brokerage firm in result update said that it will keep an eye on near-term growth as an elevated CD ratio will constrain credit growth, while continued re-pricing of deposits will likely exert pressure on margins in the coming quarters.

The bank has healthy LCR of 118 per cent as it maintains industry best outflow rates; however, the impact of a surge in non-retail deposits will need to be watched over the coming quarters, MOFSL said.

The bank has reiterated its guidance of growing by 400-600bp higher than the system over the medium term. Axis Bank has also suggested that it will continue to invest in the business, taking advantage of controlled credit costs. This will keep cost/asset ratios elevated, much higher than the earlier guidance of reaching around 2 per cent cost/assets by the end of FY25, the brokerage firm said and downgrade rating to Neutral with a revised target price of Rs 1,175.