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Axis Bank surprises with strong performance; beats estimates in Q2FY23

ICICIdirect Research 21 Oct 2022 DISCLAIMER

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.

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