Shares of Axis Bank dipped 4 per cent to Rs 808.55 on the BSE in Wednesday’s intra-day trade on profit booking after the bank reported a weak operating performance in September quarter (Q2FY22). In past three weeks, the private sector lender was up 8 per cent. The stock had hit a record high of Rs 867 on Monday, October 25, 2021.
In Q2FY22, Axis Bank’s net interest income (NII) was up modestly by 7.8 per cent year-on-year (YoY) at Rs 7,900 crore on account of 19 bps YoY fall in net interest margins (NIMs) to 3.39 per cent. Margins were impacted negatively by 13 bps sequentially due to change in mix.
The bank logged 86 per cent YoY growth in net profit at Rs 3,133 crore in Q2FY22, predominantly on robust growth in fee income and sharp fall in provisions. Axis Bank had posted a net profit of Rs 1,683 crore in Q2FY21. Credit growth for the quarter was at 10.1 per cent YoY to Rs 6.2 trillion, mainly driven by 16 per cent YoY uptick in retail loans. Deposit growth was healthy at 18.1 per cent YoY and 3.1 per cent quarter on quarter at Rs 7.3 trillion.
Asset quality profile improved with gross non-performing assets (gross NPAs) dipping to 3.53 per cent in Q2FY22 from 4.18 per cent in Q2FY21. Net NPAs rose marginally to 1.08 per cent in Q2FY22 from 0.98 per cent a year ago. Its provision coverage ratio stood at 88 per cent at the end of Q2FY22 against 88 per cent at the end of Q2FY21.
The bank has posted loan growth slightly lower than comparable peers and also margin contraction could be seen as a slight niggle. We opine though long term prospects remain bright, near term price may see some correction, especially considering recent run up, ICICI Securities said in a note.
“Axis Bank has delivered a weak core operating performance in Q2FY22, led by a margin decline, higher opex, and sluggish business growth. However, controlled provisions resulted in the bank’s earnings surpassing our estimate. On the other hand, Axis Bank’s asset quality was stable, supported by higher recoveries and upgrades while its slippages remain elevated. Total restructuring was controlled at around 0.7 per cent of loans,” Motilal Oswal Securities said in results update.
The brokerage firm expect the trend of elevated slippages to subside from H2FY22, enabling a decline in credit costs. A healthy PCR of around 70 per cent, coupled with additional provision buffer of 2.1 per cent, is likely to protect the bank’s balance sheet from any potential stress. “We cut our earnings estimates for FY22/FY23E by 6 per cent/4 per cent to factor in the higher operating expenses and lower NII, and remain watchful of a recovery in the bank’s operating earnings. We estimate Axis Bank to deliver RoA/RoE of 1.5 per cent/14.6 per cent in FY23,” the brokerage firm said.