Axis Bank Ltd is expected to report a 45 percent year-on-year surge in its net profit for the July-September quarter, supported by healthy core income growth and strengthening asset quality, when the private lender reports its Q2 performance on October 20.
The bank’s net profit for Q2FY23 is expected to be around Rs 4,561 crore on the back of a 25 percent increase in net interest income to Rs 9,921 crore, as per the average of estimates of eight brokerages polled by Moneycontrol.
Analysts expect the private bank to show loan growth of around 17 percent but still lower than its larger peers such as HDFC Bank and ICICI Bank. “However, this will partially be compensated by better NIMs–given rate transmission, we expect front-ended NIM expansion for the bank,” analysts at Elara Securities Ltd wrote in a note.
Axis Bank’s net interest margin could show a larger improvement as the lender has passed on policy rate hikes onto its loan rates. In short, the lender has not only disbursed more loans but also earned more from them during the quarter.
Also read: IndusInd Bank Q2 preview: Profit growth likely to be more than 50%
Mixed operating metrics
While core interest income could show strong growth, non-interest income could be tepid owing to pressure on treasury income. But, unlike in the previous quarter, the bank may not witness a large mark-to-market hit on its bond portfolio as yields slipped during the quarter. When bond yields fall, prices rise and vice-versa.
Also Read: HDFC Bank Q2: All-round show, margin beat a key talking point
Analysts at Nuvama Research, formerly Edelweiss Securities, expect non-interest income to slip by a percent for the July-September quarter. This, along with elevated operating expenses, could limit the growth in operating profit to roughly 19 percent.
“Operating expense growth to continue at 4 percent QoQ resulting in 17 percent YoY growth,” ICICI Securities’ analysts wrote in a note.
Amid stellar loan growth, deposits may expand at a slower pace, analysts said. While Axis Bank won’t be an outlier in slower deposit growth, the share of low-cost current and savings acccount (CASA) in total deposits would be the key. As of April-June, the bank’s CASA deposits formed 43.7 percent of total.
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Asset quality boost
The strong point in Axis Bank’s earnings would be the persistent improvement in its asset quality.
Analysts see provisions getting almost halved from the year-ago period, which would boost profits for the September quarter. Bad loan ratios are expected to tick down, partly due to upgrades and also due to strong loan growth.
Fresh slippages, too, are expected to fall by at least 5 percent sequentially. In Q1FY23, Axis Bank’s slippage ratio was 2.19 percent and this is likely to slide to 2 percent in July-September.
“Also, there could be higher recoveries and upgrades QoQ, which should result in lower GNPA QoQ,” according to ICICI Securities.
In-line earnings performance would give credence to the 16 percent gain in the bank’s shares in the past three months. That said, investors would focus on the management’s commentary on the progress of the acquisition of Citibank’s credit card business. Outlook on operating expenses and capital raising plans would also be watched by investors.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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