Shares of Axis Bank Ltd rose over 8% on the National Stock Exchange on Friday to hit a new high of 52. 895.70 each. Investors are thrilled with the bank’s good numbers for the quarter ended September (Q2FY23). Margin improvement has been the highlight of Q2 results.
The Bank’s Net Interest Income (NII) grew by 10% sequentially and 31% y-o-y (y-o-y). Net interest margin (NIM) rose 36 basis points (bps) on a quarter-on-quarter basis to 3.96% in the second quarter. One basis point is 0.01%. NII recovery was supported by strong growth in loans which grew 18% (YoY). Retail and SMEs grew at a healthy rate of 22% and 28% respectively. Retail loans account for the largest share of the total loan book at 58%, followed by SMEs at 11% and corporate at 31%.
“Strong NIM expansion and lower credit costs propelled us to grow earnings by 14% in FY23 and 7% in FY24-25,” analysts at Jefferies India said in a report on October 21.
Axis Bank’s management said the NIM will be maintained at current levels, led by improved business mix, higher returns and asset revaluation.
On the other hand, the slow growth of deposits is a matter of concern. Deposit growth was at 10%, mainly due to a sluggish growth in retail fixed deposits as it contributes the largest share to total deposits (37%). “By using excess liquidity on the balance sheet and reducing the investment book, the bank will need to accelerate deposit growth in H2 to support higher credit growth,” said the analyst at Emkay Research. He further added stability. There will be little testing of margins at current higher levels.
Meanwhile, there is rest on the asset quality front with Axis Bank’s gross non-performing assets (NPA) and net NPA ratio declining by 26 bps and 13 bps, respectively, to 2.50% and 0.51% respectively in the second quarter. Is. moderated on slippage 3,383 crore vs. 3,684 crore in Q1. Further, the bank’s restructured ledger continued its declining trend and declined to 0.38% of loans, from 0.45% in Q1. The Bank Provisional Ratio Coverage (PCR) in the current quarter was 80%.
“With high PCR and a strong balance sheet, the bank can absorb shocks from any unforeseen future risks. We believe its valuation is justified given the visible structural improvement across the franchise and offers an attractive risk-reward,” said analysts at Sharekhan.
A sharp jump in Axis Bank shares after second-quarter results suggests investors are factoring in some optimism.
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