Brokerages slash Axis Bank's target price, forecast lower earnings

A day after the results, the stock tumbled nearly 7 percent during the day before recovering and closing at Rs 1178.60 a piece, 4.93 percent down.

Some brokerages slashed Axis Bank’s target price after the lender reported a mixed bag of numbers in the first quarter of FY25. Global brokerage Citi downgraded the stock to 'Neutral,' with a lower target price of Rs 1,320. In addition, it cut the bank's FY25 and FY 26 earnings estimates by 3 and 1 percent, respectively.

Nuvama Institutional Equities, on the other hand, retained a buy call on the stock but lowered the target price to Rs 1,430 apiece from  Rs 1,500, implying a potential upside of 15 percent from the previous close. It added that the bank delivered in-line Q1 profit, but missed the core income estimates. Sequential rise in the loan-to-deposit ratio (LDR) and a sharp increase in credit cost were key negatives, it said.

A day after the results, the stock tumbled nearly 7 percent, before recovering and closing 4.93 percent down, at Rs 1,178.60.

Santanu Chakrabarti, Analyst, Banking and Finance, BNP Paribas India, said in a report that they have kept Axis Bank as a buy, but cited risks for long-term holding, especially if rate cuts are delayed till mid-2025.

Q1 numbers and trends

The country’s third largest private sector bank reported a net profit of Rs 6,035 crore for Q1 FY25, up from Rs 3,452 crore last year, beating street expectations. But sequential profit was down 15 percent.

The bank's asset quality also worsened sequentially, with gross non-performing assets (NPAs) up 11 basis points (bps), at 1.54 percent, and net NPAs up 3 bps, at 0.34 percent. On a year-on-year (YoY) basis, the bank's GNPA and NNPA improved by 42 and 7 bps, respectively. In a post-results call, Puneet Sharma, Chief Financial Officer (CFO), said that there was some pressure on asset quality due to seasonality in the retail agri business in the first quarter.

Commentary from the bank's management indicated that the bank is expecting its credit cost to rise further due to a slower pace of recoveries. "We need to factor in that seasonality was a reason for the sequential rise in NPAs, and we expect credit costs to go higher amid a lower pace of recoveries," Axis Bank management stated during the call.

On the bank's unsecured business, Emkay Global Financial Services said that faster unsecured growth compared to the larger retail book needs to be noted. "Within retail, the bank continues to grow its unsecured book at a faster pace. Hence, we believe this should be watched, given the noise on the rising stress,” it said in a note.

On the growth in personal loans, Subrat Mohanty, Executive Director, Banking Operations and Transaction Banking, Axis Bank, said that that was an industry-wide trend.  The bank’s retail book includes 29 percent unsecured business, while the rest is secured.