Why Axis Bank shares fell 7% despite robust Q4 earnings?

Axis Bank was the worst hit stock on the domestic bourses today even after the private sector lender reported strong earnings for the fourth quarter ended March 31, 2022. Investors weighed lower-than-expected growth in quarterly net interest income (NII), which fell short of market estimates. Shares of Axis Bank declined as much as 7% to hit an intraday low of ₹725 apiece on the BSE, before settling 6.6% lower at ₹728.70. In comparision, the BSE Sensex closed at 57,061, 460 points, or 0.8%.

In a post market release on Thursday, the country’s third largest private sector bank reported a higher-than-expected 53.8% jump in net profit to ₹4,118 crore for the quarter ended March 22, compared to ₹2,677 crore in the year-ago period. The total income increased to ₹21,999 crore in the January-March quarter of FY22, against ₹19,035 crore in the corresponding period last year.

Net interest income (NII), the difference between interest earned and interest expended, rose to ₹8,819 crore in the quarter under review from ₹7,555 crore in the March quarter of the previous fiscal. Although the NII grew 16.7% year-on-year, it fell short of market expectations. Domestic brokerage firm Sharekhan was expecting the bank to report 22.7% YoY rise in the NII to ₹9,269 crore during the quarter under review.

For the full financial year 2022, net profit nearly doubled to ₹13,025 crore from ₹6,588 crore in the previous fiscal. NII for the full fiscal stood at ₹33,132 crore, up 13% from ₹29,239 crore in FY21.

On the asset quality front, the bank’s gross non-performing assets (GNPAs) dropped to 2.82% of the gross advances, from 3.70% in the year-ago period. Net NPAs too fell to 0.73% compared to 1.05% in the same quarter last year.

For the Jan-Mar quarter of 2022, provisions and contingencies fell more than half to ₹987 crore from ₹2,167 crore set aside for Q4 FY21. Gross slippages during the March quarter stood at ₹3,981 crore, compared to ₹5,285 crore in Q4 FY21, Axis Bank said in a statement.

Here’s what analysts say on Axis Bank Q4 results

Domestic brokerage ICICI Securities said in its report that the bank’s NII grew 17% YoY and 2% QoQ to ₹8,819 crore, which was a tad lower than the consensus estimates. “With cost to assets remaining elevated at 2.3% and continued investment in growth and franchise build-up, management refrained from reiterating its earlier guidance of cost/asset ratio of 2.2% by the exit quarter of FY23,” the brokerage says in its report. The agency has maintained a “buy” rating on the stock with an unchanged target price of ₹1,050.

LKP Securities has also recommended buy rating on the stock with a target price of ₹960, from current price of ₹777, an upside of 24%. The brokerage in its report says that the bank maintained growth momentum, but lower slippages led to reduction in gross non-performing asset (GNPA) ratio.

Analysts at YES Securities have given a buy call on the private bank with a target price of ₹1,050, a potential upside of 35% from current price of ₹780.

Global brokerages Goldman Sachs, Morgan Stanley and BofA Securities also remained bullish on Axis Bank, expecting an upside of 13-17% going ahead.