Shares of Axis Bank witnessed a sharp sell-off on Wednesday, a day after the private sector lender released its financial performance for the third quarter ended December 31, 2023. The shares of the banking heavyweight came under stress, in an otherwise positive broader market, due to lower-than-expected growth in net profit, while net interest income (NII) and net interest margin (NIM) were largely in line with projections.

Reacting to Q3 numbers, Axis Bank shares opened lower for the second straight session at ₹1,040.10, down 4.4% against the previous closing price of ₹1,088.90 on the BSE. In the first two hours of trade so far, the banking stock declined as much as 6.2% to ₹1,020.85, while the market capitalisation slipped to ₹3.27 lakh crore. The stock has fallen nearly 9% in two sessions and over 3% in a week.

Axis Bank released its December quarter earnings post market hours on Tuesday, which showed that its net profit rose by 4% year-on-year to ₹6,071 crore in Q3 FY24, which falls slightly short of the market consensus estimate of ₹6,114 crore. Sequentially, the profit increased by 3.5% as compared to previous quarter at ₹5,863.56 crore in Q2 FY24, mainly due to increase in provisions and contingencies by 26.2% QoQ. The bank made an additional provision of ₹182 Cr relating to alternative investment funds (AIF).

The bank’s net interest income (NII), the difference between the interest earned and the interest paid, grew by 9% YoY to ₹12,532, crore, which is almost in line with the market estimate of ₹12,555 crore. The net interest margin (NIM) for the quarter was at 4.01%.

On the asset quality front, Axis Bank’s gross non-performing asset (NPA) improved to 1.58% in Q3 FY24, from 2.38% registered in the same quarter last year. The net NPA for the quarter was flat at 0.36% on a YoY basis.

In Q3 FY24, Axis Bank reported advances growth of 3.9% QoQ at ₹19.3 lakh crore, which was led by retail and SME segments posting a growth of 5% QoQ and 4% QoQ, respectively. During the quarter, deposits increased by 5.2% QoQ to ₹10 lakh crore, driven mainly by term deposits while CASA growth remained muted.

Should you buy, sell or hold Axis Bank post Q3?

JM Financial in a report says that Axis Bank’s transformation is in the right direction driving stock performance going ahead. The brokerage has maintained “BUY” on the stock with a target price of ₹1,330 per share. “Given the long-term measures undertaken to improve the liability franchise and portfolio granularity, we expect average return on assets (ROA) and return on equity (ROE) of 1.8% and 18.1% over FY24-26E.”

The brokerage in its report says that the management of the bank believes that systemic liquidity situation will have to ease if credit growth has to sustain at healthy levels and thus remains confident of navigating the situation with healthy NIMs. “Axis Bank will continue to invest opportunistically in its key priorities of distribution and technology and this may potentially lead to its operating cost ratios to remain slightly elevated longer than before,” the report notes.

Meanwhile, Religare Broking remains positive on Axis Bank, citing that the bank is seeing healthy credit growth along with increasing deposits along with gain in market share in terms of advances and deposits. It has also maintained ‘Buy’ on the stock while revising its target price to ₹1,275.

“In the medium term, the bank expects to grow 500-600 bps higher than the industry. Margins, which remained under pressure during the quarter, is expected to improve going forward. Asset quality continue to improve for the bank as the credit costs have improved along with a decline in slippages and corporate recoveries,” the brokerage says in its report.

The agency further says that the bank’s slippages also declined along with a decline in NPA. Credit costs during the quarter declined by 16bps QoQ and 41bps YoY to 0.5% mainly led by a drop in provisions.

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