Axis Bank, on October 20, posted a 70 percent year-on-year (YoY) rise in its net profit to Rs 5,329.77 crore in the July-September quarter, up from Rs 3,133 crore in the same quarter of the previous financial year.
The profit growth came higher than a 45 percent increase in net profit for the fiscal second quarter that analysts estimated.
The bank’s net interest income (NII) went up by 31 percent on YoY basis to Rs 10,360.3 crore, from Rs 7,900 crore in Q2FY22. It was Rs 9,384 crore in Q1FY23. The net interest margin (NIM) was at 3.96 percent, which is a rise of 57 basis points (bps) YoY and 36 bps rise QoQ.
Here are the top five key points analysts have highlighted from the private lender's Q2FY23 earnings:
Profit after tax (PAT)
After the robust growth in PAT of the private lender in the reporting quarter, most analysts have revised their estimates for the current financial year and next financial year slightly upward. The net profit of the private lender grew 70 percent in the quarter under review.
Some analysts pegged PAT in the current financial year to rise in the range of 9 percent and 17 percent, and in the net financial year, it is seen in the 2-11 percent range.
"Buoyed by a stellar performance in 2QFY23, we revise PAT for FY23E/24E by 17 percent/11 percent, respectively. This is driven by healthy NII trends, moderating open (on the back of improved efficiency) and reduction in credit cost," Motilal Oswal Investment Services said in a report.
B&K Securities said the performance of the private lender could also be influenced by the potential capital raise, though the bank sounded confident of a capital raise only in the next financial year.
Treasury Income
The private lender, in the reporting quarter, reported a sharp fall in treasury losses and it stood at Rs 86 crore compared to a loss of Rs 667 crore in the previous quarter and a profit of Rs 473 crore for the same quarter last year.
The bank officials, during the earnings conference call, said that the mark-to-market (MTM) is largely in their corporate bond book. The rise in yields on corporate bonds have impacted their MTM.
Eighty percent of the bank’s corporate bonds are rated AA+ and above, and 96 percent is rated A- and above. "We do not expect an economic loss on this book. All else being equal, the pull to par period on this book is about four to five years," officials added.
On this front, analysts believe that treasury losses of Axis Bank will likely remain moderate in the upcoming quarters on stable long-term yields on government securities and corporate bonds.
"Treasury losses are momentary as the bank has to make MTM adjustments. We may see some or minor gains in the treasury, going forward," said Ajit Kabi, Equity Research Analyst (Institutional, Banks & NBFCs), at LKP Securities Limited.
Deposit growth
Analysts were disappointed with the deposit growth of the bank, but expect it to rise in the next two quarters. "The deposit growth of the bank in the current quarter is below par. The bank needs to mobilise deposits further to maintain CDR below 90 percent. We expect the deposit growth to revamp from next quarter," Kabi of LKP Securities added.
In the reporting quarter, the private lender's deposit stood at Rs 8.2 lakh crore, and growth remained below par of 10.1 percent YoY and 0.9 percent on-quarter.
The CASA (QAB) stood at 43 percent and CRAR stood at 16.42 percent with CET 1 of 14.55 percent. Additionally, LCR of 121 percent with an excess SLR of Rs 55,500 crore.
"The bank needs to grow the deposits to maintain a CDR of below 90 percent," said LKP Securities in a report.
Net interest margins (NIM)
The bank’s net interest income stood at Rs 10,400 crore; up 17 percent on-year and 6 percent on-quarter. The bank’s NIMs expanded by 36 bps to 3.96 percent on the back of slightly higher cost of funds (4.09 percent) and cost of deposits (3.8 percent). Non-interest income grew by 31 percent on-quarter.
The management hopes to achieve structural improvement in NIM going forward, owing to improvement in mix of loans versus investments on the assets side, higher share of low-cost deposits and reduction in RIDF bonds (which have negative spread) as incremental allocations have stopped since the bank is PSL-compliant.
"Our operating margins and NIM are in the zone of the best-performing franchises. We see acceleration in our focus segments and there is all-round improvement in all key performance metrics on deposits and assets," officials said in a conference call.
Asset quality
Most analysts were happy with the improvement in the asset quality in the reporting quarter. This is because gross slippages declined 8 percent on-quarter to Rs 33,800 crore.
Consequently, net NPAs declined 13 bps QoQ to 51 basis points.
The restructured pool reported lower meaningfully at Rs 30,000 crore (38 bps of GCA) v/s Rs 3.400 crore in the previous quarter. The bank carries a provision of 23 percent on restructured loans, which is in excess of regulatory limits. The corporate segment has 26 bps of loan book under restructuring, while Retail and SME segments carry restructuring of 55 bps and 2 bps, respectively.
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