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Axis Bank surprises with strong performance; beats estimates in Q2FY23
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What's buzzing
Axis Bank's business and operational performance were robust. Asset quality trend continued to improve. A ~36 bps QoQ improvement in margin was a positive surprise, led by faster transmission of rate hikes and focus on unsecured lending. Credit growth for the quarter was strong at 17.6% YoY ahead of industry average driven by corporate and MSME segment. Strong topline coupled with lower credit cost boosted PAT.
Context
NII growth was 17.6% YoY, on the back of improved NIMs and strong credit growth. NIMs were up ~36 bps sequentially to 3.96%. C/I ratio declined to 46% vs. 49% a year ago. Asset quality has improved as GNPA, NNPA ratio declined 26 bps, 13 bps QoQ to 2.5%, 0.51%, respectively. GNPA ratio declined due to moderation in slippages to 1.88%. R/s book was at 0.38% vs. 0.45% in previous quarter.
Our Perspective
Axis Bank reported a robust performance, both in terms of business growth as well as operational performance. Focused risk adjusted lending is seen aiding business growth while higher proportion of floating rate loans will enable faster transmission of rate hike thereby aiding margin trajectory. Liabilities franchise remains strong with CASA at ~46%. However, deposit accretion needs to be pedalled to fund incremental lending, which could keep NIM at current levels. With cumulative provision at | 1160 crore, we believe credit cost will be under control, resulting in an improved earnings performance with PAT growth of 31% CAGR in FY22-24E. Healthy business growth (16-17%), improvement in NIM (3.8-3.9%), controlled opex (~2% of assets) and benign credit cost (<0.5% of advance) are expected to boost return ratios (RoA at ~1.6%). Hence, we remain positive on the stock.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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