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Sector Outlook: Positive
Numbers beat estimates across metrics
In the fourth quarter of FY24, the bank reported a Net Interest Income of Rs. 13,089 crores, which was an increase of 11.5% compared to last year and better than the expected Rs. 12,926 crores. The bank’s Pre-provision Operating Profit was Rs. 10,536 crores, slightly down from last year. Provisions for potential losses increased to Rs. 1,185 crores. The bank’s profit for the quarter was Rs. 7,130 crores, which was more than anticipated and showed a significant quarterly rise of 17.4%. This quarter’s figures were influenced by a one-time expense from last year related to acquiring Citibank. The bank’s net profit margin (NIM) was slightly better than the last quarter at 4.06%, but lower than last year. Bad loans decreased, improving the bank’s asset quality, and its capital adequacy ratio, which is a measure of financial health, improved significantly. Deposits and loan issuances both grew, with notable increases in deposits from fixed term accounts and loans to small businesses. However, the ratio of low-cost deposits decreased compared to previous quarters.
Key Concall Highlights
- The bank aims to become stronger and more versatile, adding 475 new branches this year, reaching a total of 5,000 branches.
- Retail deposit growth is strong, and despite high interest rates, the bank expects both deposit and loan growth to hit around 13% by FY25.
- This quarter saw higher provisions due to increased coverage across all loans, with the bank maintaining full provisions on certain investments.
- The bank is financially stable with a liquidity coverage ratio of 120%. Over the next 3-5 years, it plans to grow its loans 3-4% faster than the industry average.
- Increasing deposits is key to supporting future loan growth, and the bank is continuously working to improve its deposit rates.
- The bank has successfully managed its funding costs this quarter and throughout the year.
- Interest rate hikes have not been fully passed to customers yet, depending on how other banks and the market react.
- The bank sees steady demand for credit cards and plans to increase balances through customer spending and lending.
- The new capital raised this year will help resolve financial matters, not for growth or protection.
- The wholesale loan book saw some issues this quarter but is improving in quality.
Valuation and Outlook
Axis Bank had a strong fourth quarter in 2024, performing well across various areas, particularly in small and medium-sized enterprise loans despite high interest rates. The bank saw healthy profit margins, mainly due to better management of its finances and strong performance in profitable sectors. Deposits grew significantly, with a large portion coming from high-cost term deposits. Looking ahead, Axis Bank expects its loan growth to outpace the industry by 3-4% over the next three to five years. The bank’s financial health continues to improve, and it expects this trend to continue. Following its acquisition of Citibank India, Axis Bank anticipates further success and has also planned to raise Rs. 55,000 crores to support operational needs, not for expansion. The bank’s strategy includes expanding its physical branches and enhancing digital services, which should position it well in the competitive Indian banking sector.
