ICICI Securities research report on Axis Bank
Axis Bank (Axis) reported disappointing Q1FY26 with a massive rise in gross/net slippages and credit costs. Axis, in its Q4FY25 call, without quantifying, had mentioned that it has tightened the upgrade and classification criteria (technical impact), which could adversely impact asset quality outcomes. The technical impact on gross slippages (INR 27.1bn), net slippages (INR 18.6bn) and credit costs (INR 8bn) is: 1) higher than our estimates; and more importantly 2) difficult to comprehend, in our view. Gross/net slippages jumped to ~3.1%/2.3% annualised, while credit costs spiked to 1.5%. RoA moderated to 1.5%, cushioned by treasury/fee and muted opex. NIM declined ~17bps QoQ to 3.8% and the bank retains its ‘through the cycle’ guidance of 3.8%. Axis now aims for outpacing the industry on loan growth in FY26 and continued muted opex in the near term. Retain BUY on valuations.
Outlook
We cut our target multiple to ~1.65x (~1.8x earlier); TP revised to INR 1,370 (INR 1,470 earlier). Maintain BUY on valuations, though we believe that the stock’s returns are likely to be back-ended. Axis has seen higher churn at the senior level and we hope the bank addresses this before it starts impacting execution.
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