Axis Bank Q3 profit up 4%, misses estimates on weak margins

Axis Bank, one of India's largest private sector banks, has reported its financial results for the October-December quarter. The bank's net profit for the quarter stood at Rs 6,071 crore, marking a 4% YoY rise.

However, the figure fell short of market expectations, primarily due to provisioning linked to alternative investment funds (AIFs) and cost pressures.

Despite the subdued profit growth, the bank's net interest income (NII) grew by 9% to Rs 12,532 crore, driven by healthy credit growth. However, the net interest margin (NIM) shrank to 4.01% from 4.26% a year ago due to a rising cost of funds.

Axis Bank's loan growth remained strong at 23%, while deposits grew by 18%, pushing the credit-to-deposit (CD) ratio to an elevated 93%. This high ratio could potentially constrain future credit growth.

What are the thoughts of analysts on the performance?

Analysts have expressed mixed opinions on the bank's performance. Jefferies and HSBC maintain a 'buy' rating with target prices of Rs 1,380 and Rs 1,404, respectively, citing the bank's strong franchise and attractive valuations. However, Motilal Oswal downgraded the stock to 'neutral' with a target price of Rs 1,175, expressing concerns about margin pressure and the high CD ratio.

The bank's management expects margin pressure to persist until Q1FY25 due to deposit repricing but anticipates an improvement going forward. Going ahead, Axis Bank's ability to control costs and improve deposit mobilization will be crucial in driving future profitability. Managing the high CD ratio and maintaining loan growth will be a key challenge for the bank.

Conclusion

Overall, while Axis Bank's Q3 results were mixed, analysts believe that the bank is well-positioned for long-term growth. However, near-term profitability may face headwinds, and investors should keep an eye on the bank's ability to address the near-term challenges and maintain its strong franchise value.