Axis Bank Ltd Quarterly Results Update

Net Interest Income stood at Rs. 11,959 crores in Q1FY24, showing a growth of 1.8% QoQ / up 27.4% YoY but marginally lower than market estimates of Rs. 12,000 crores. Pre-provision operating profit (PPOP) stood at Rs. 8,814 crores in Q1FY24, down 3.9% QoQ / up 49.7% YoY. Provisions rose to Rs. 1,035 crores in Q1FY24 from Rs. 306 crores in Q4FY23 and Rs. 359 crores in Q1FY23. The higher provision was mainly due to the non-utilization of COVID provisions in Q1FY24. The bank’s quarterly net profit stood at Rs. 5,797 crores in Q1FY24, up 40.5% YoY and missing market expectations of Rs. 6,000 crores. 

This was mainly due to higher provisions and some costs pertaining to Citi Bank’s acquisition. NIM stood at 4.1% in Q1FY24, down 12bps QoQ / up 50 bps YoY. Gross NPA stood at 1.96% in Q1FY24, down 6bps QoQ / down 80 bps YoY. Net NPA stood at 0.41% in Q1FY24, up 2bps QoQ / down 23 bps YoY. Capital Adequacy Ratio stood at 17.08% in Q1FY24 compared to 17.64% in Q4FY23 and 17.28% in Q1FY23. Gross Deposits showed a decent growth at Rs. 9,41,690 crores in Q1FY24, down 0.6% QoQ / up 17.2% YoY. Gross Advances stood at Rs. 8,58,511 crores in Q1FY24, up 1.6% QoQ / up 22.4% YoY because of robust loan growth delivered across all business segments. CASA declined to 46.0% in Q1FY24 from 47.0% in Q4FY23 and 44.0% in Q1FY23.

Key Concall Highlights

• The bank’s deposit franchise grew 400 bps faster than the industrial improvement in both the quality and composition of deposits.
• The disbursement pipeline for Q2FY24 looks healthy; 70% of the pipeline is from term loans and the balance 30% is from working capital and trade.
• The bank’s digital banking performance is strong and the Digital 2.0 balance sheet continues to deliver strong growth with a 56% increase in deposits and a 60% increase in loans. Axis 2.0 is now roughly 5% of the bank’s overall business and it intends to increase contribution by 3 times to 4 times by fiscal 2027.
• The marginal cost of deposits for the bank has stabilised over the last few months. The management expects the cost of deposits to increase further over the remaining part of the financial year, but the pace of deposit growth will most likely moderate.
• Provisions and contingencies for the quarter were Rs. 1,035 crores and the bank has not utilised any COVID-19 provisions. This provision is entirely prudent.
• The sequential increase in net credit cost is attributable to higher seasonal rural slippages and lower recoveries as compared to the previous quarter from prudentially written-off accounts, largely from the corporate portfolio.
• Axis Bank expects to incur integration expenses over a period of 18 months, aggregating to Rs. 2,000 crores due to the acquisition of Citi’s consumer business.
• Amidst the deposit growth intensifying from the next quarter, the bank is focusing on growing its market share in deposits through district by district-level approach.

Valuation and Outlook

Private lender Axis Bank reported a decent performance in Q1FY24 across all parameters,

barring the high provisioning. Also, we observed that the bank had some elevated operational costs on account of the amortisation of goodwill which was due to the acquisition of Citi’s consumer business which shall continue throughout FY24. We believe that the acquisition will strengthen the bank’s deposits and aid the bank in further increasing its disbursement and improving its net interest income. 

We feel that NIM compression will likely slow down for the bank as its acquisition of Citi’s clientele will help increase the yield in the coming quarters. However, we will watch in the coming quarters to assess whether the acquisition process is done smoothly and does not affect the bank’s asset quality and bottom line. Our comfort with the bank will come with the progress of Citi’s acquisition and the business getting back to normalcy.