Axis Bank Ltd Quarterly Results Q3 FY 25 stock analysis

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Check out the latest Result of Axis bank Ltd for Q3FY25

Sector Outlook: Positive

Subdued quarter, with slower business growth and sequential decline in key metrics

Net Interest Income (NII) was ₹13,606 crores in Q3FY25, increasing by 0.9% QoQ and 8.6% YoY. Operating expenses were ₹9,044 crores, declining by 4.7% QoQ and rising by 1.1% YoY. Pre-Provision Operating Profit (PPOP) stood at ₹10,534 crores, down 1.7% QoQ but up 15.2% YoY. Net Profit (PAT) was ₹6,304 crores, a decline of 8.9% QoQ but an increase of 3.8% YoY. Net Interest Margin (NIM) was 3.93%, falling 6 bps QoQ and 8 bps YoY. CASA Ratio dropped to 39% from 41% in Q2FY25 and 42% in Q3FY24. Return on Assets (ROA) was 1.64%, down 20 bps QoQ and 11 bps YoY. Return on Equity (ROE) stood at 15.37%, declining 223 bps QoQ and 263 bps YoY. Gross Advances grew to ₹10,14,564 crores, up 1.5% QoQ and 8.8% YoY, while Gross Deposits reached ₹10,95,883 crores, rising 0.8% QoQ and 9.1% YoY. The Capital Adequacy Ratio (CAR) improved to 17.10%, up 49 bps QoQ and 47 bps YoY. Gross NPA (GNPA) was 1.46%, up 2 bps QoQ but down 12 bps YoY, while Net NPA (NNPA) was 0.35%, up 1 bps QoQ and down 1 bps YoY. Domestic subsidiaries performed steadily, with a 9MFY25 PAT of ₹1,401 crores, up 26% YoY. The bank added 130 branches this quarter, expanding its network to 5,706 domestic branches, 202 business correspondent outlets, and 3,122 centres as of 31 December 2024.

Key Concall Highlights

The bank’s focused loan segments, including small businesses, SMEs, and mid-corporates, grew by 4% QoQ and 16% YoY.
Management highlighted an improvement in the diversification of their deposit base over the past 2-3 years.
Deposits grew through salaried accounts (up 24% YoY), premium account acquisitions (up 42% YoY), and Burgundy accounts (up 26% YoY).
The bank avoids aggressive deposit growth through high interest rates, focusing instead on a stable and diversified deposit base.
The bank is well-capitalized with a CET1 ratio of 14.61%, and plans to raise funds through Tier 2 and AT1 bonds instead of equity.
Microfinance (MFI) exposure is minimal, accounting for 1% of total retail assets and 0.6% of total advances.
Slippages primarily arose from retail unsecured loans (₹49.23 bn), with additional slippages from CBG (₹2.15 bn) and corporate loans (₹2.94 bn).
Non-NPA provisions stand at ₹118.75 bn, including ₹50.12 bn for potential ECL, ₹18.98 bn for standard assets, and ₹45.50 bn for weak assets and other provisions.
Recoveries from written-off accounts increased to ₹13 bn, up 32%, while net slippages rose to ₹35.17 bn, a 48% QoQ increase.
The rise in credit costs is attributed to the normalization of the credit cycle at the start of a new phase.
The bank is comfortable with its high Loan-to-Deposit Ratio (LDR) and does not aim to grow deposits at the expense of stability.
150 new branches were opened in the last three months, and 330 branches were added in the first nine months of FY25.

Valuation and Outlook

Axis Bank, India’s third-largest private lender, delivered underwhelming results for Q3FY25. The net profit declined, and growth in loans and deposits was the slowest in 15 quarters. Quarter-on-quarter results were disappointing. The net interest margin (NIM) also fell slightly, mainly due to income reversals and slower loan growth. The reduced loan growth stemmed from the management’s cautious lending approach in the retail and microfinance sectors, where financial stress has been observed. Looking ahead, the bank’s credit growth is expected to remain slow due to the credit-deposit (C-D) ratio and reduced growth in unsecured loans, which may further pressure NIM. Year-on-year, key metrics showed some improvement, and the better deposit mobilization environment may help the bank grow faster than the industry average. Markets will closely watch how Axis Bank responds to the draft RBI circular aiming to eliminate overlapping business areas. Moving forward, the management’s focus on boosting loans and deposits while managing NIM impact will be crucial.