Private sector lender Axis Bank reported a one-time loss from accounting for its merger with Citi Bank's India consumer business, ex of which it delivered a beat, led by strong loan growth, healthy fee income and lower credit costs. Net interest margin (NIM) moderated marginally on account of excess liquidity on the balance sheet and catch-up in funding costs following accelerated deposit mobilisation.

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That said, Axis Bank's loan-to-deposit ratio of 89 percent continues to remain high and domestic brokerage HDFC Securities believes the lender will have to further accelerate efforts to match its targeted loan growth (management has guided for loan growth of 400-600 basis points above industry), which is likely to impede medium-term NIMs.

The brokerage has tweaked its FY24/FY25E earnings estimates by +3 percent each to adjust for normalised credit costs and higher opex on continued investments in growth. It is maintaining a 'Buy' rating on the stock with a revised SOTP-based target price of Rs 1,130 per share.

Axis Q4 numbers

On Axis Bank's Q4 numbers, Motilal Oswal said, "AXSB delivered a stable performance in 4QFY23, with earnings being driven by lower provisions and higher fee income even as margin remained range-bound. AXSB completed the Citi acquisition, which included a one-off cost of Rs 123.5 billion that resulted in a loss.

"Business growth was healthy led by strong traction across

segments. Asset quality continued to improve with moderation in slippages and healthy trends in recoveries and upgrades. The restructured book was controlled, which coupled with a higher provisioning buffer provided comfort on credit cost," the note stated.

The brokerage has tweaked its estimates slightly and expects the lender to deliver an RoA/RoE of 1.9 percent or 18.1 percent in FY25. Motilal Oswal reiterates 'Buy' with target price of Rs 1,100.

Healthy NIMs, better fee

The lender has acquired one of the best premium retail franchises in India and strong execution here should bear healthy rewards in the form of healthy NIMs, better fee and step-up in RoE FY25 onwards.

Maintain a 'Buy' call, ICICI Securities said, "While Axis Bank has reasonable CET 1 at 14% and strong internal accrual, we believe it could look to raise capital, which should propel even stronger growth," said ICICI Securities, adding, "We value the stock at 1.8 times FY25E ABV (2.1 times FY24E ABV; in line with long-term average trading multiple) and assign Rs 74 per share for subsidiaries."

Key risks include lower-than-expected growth and higher-than-expected opex leading to pressure on core operating earnings.

Macquarie has an 'Outperform' rating on the Axis Bank stock with a target price of at Rs 940 per share. Here's what the brokerage said -

Growth needs to pick up loss as expected; credit costs drive RoA

Co has prioritised margin over loan growth

Need to closely monitor full Citi acquisition impact in FY24

Axis Bank shares

Shares of Axis Bank were trading lower today after the private sector lender reported a loss of Rs 5,728.42 crore in the March (Q4FY23) quarter on account of the acquisition of Citibank India's consumer business. Excluding the one-time hit due to the deal with Citi, Axis Bank made a net profit of Rs 6,625 crore in the fourth quarter, up 61 percent year-on-year.

The stock was trading 2.88 percent lower at Rs 856 apiece on the NSE during morning deals. The bank shares fell 9 percent on a year-to-date basis, while it rose 10 percent in the last one year. The stock hit a 52-week high of Rs 970.45 on January 4, 2023, and 52-week low of Rs 618.1 on June 23, 2022.

First Published:Apr 28, 2023 11:01 AM IST