Axis Bank- Growth outlook strong; a robust 18% core PPoP growth from FY23 to FY26F seen

Axis Bank: Growth outlook strong; a robust 18% core PPoP growth from FY23 to FY26F seen

Axis reported a profit after tax (PAT) of Rs 58 billion in Q1FY24, showing a 41% year-on-year increase. The PAT was 9% below our estimate but in line with Bloomberg consensus. The PAT miss was attributed to softened topline growth and core fees, resulting in a 7% deviation from our core pre-provision operating profit (PPoP) estimate. This quarter marked the first full reporting period for Axis Bank since the acquisition of Citibank (unlisted), leading to some discrepancies compared to estimates, which were expected.

Our analysis suggests a decline in Citi’s fee line compared to the annualised run-rate of CY20 (last disclosed by AXSB before the acquisition), indicating some softness. Consequently, we have adjusted our FY24-26F EPS by 2%. Axis Bank’s RoA decreased to 1.8% in 1Q from 2.1% in 4Q, due to higher operating expenses related to Citi’s integration and credit costs, as well as lower NIMs. Excluding the impact of integration costs (expected to continue until 2QFY25F), the RoA in 1Q was at 1.9%.

Core PPOP miss on lower NII

Loan growth recorded a solid 22% y-o-y increase, with retail, corporate, and SME segments growing at rates of 21%, 25%, and 24% y-o-y, respectively. However, on a sequential basis, the growth was subdued, with only a 2% q-o-q increase, primarily due to softer trends in home loans and LAP (loan against property) segments.

As for deposits, there was a notable 17% y-o-y growth, but there was a slight decline of 1% q-o-q. The decline in current account deposits by 10% q-o-q is seasonal in nature and contributed to the overall q-o-q decrease in deposits. On a quarterly average basis, Axis Bank’s deposits saw a healthy growth of 6% q-q.

CASA ratio improved to 45.5%, representing a significant y-o-y increase of 180 bps. NIMs experienced a q-o-q decline of 12 bps, which aligned with ICICI Bank’s performance. Core PPoP reached Rs 83 billion, showing a noteworthy 27% y-y growth but a decline of 9% q-q. The core-PPoP fell 7% below our estimates due to lower net interest income (NII) and fee income. Asset quality remained stable, with gross non-performing loans slightly declining to 2.1% compared to the previous quarter’s 2.2%.

Valuation and view

We assign a valuation of 1.9x Jun-2025F BVPS (book value per share) to the core-bank, and the subsidiaries are valued at Rs 44 per share. Axis Bank remains one of our top choices among banks, and we maintain a positive outlook on the stock.