Axis Bank Q3 results: A near wash-out quarter, with more misses than beats, has forced analysts to cut Axis Bank share price target for the next one year. They, however, see limited downside in the stock, falling back on valuation comfort.
Nuvama Institutional Equities, for instance, has cut its one-year share target price on Axis Bank to Rs 1,220 from Rs 1,335 as the brokerage gave a thumbs down to Axis Bank’s muted deposit growth, net interest margin (NIM) contraction, lower fees, and a sharp rise in slippage and credit costs.
“Gross slippages shot up 22 per cent quarter-on-quarter (Q-o-Q) in the December quarter (Q3FY25), higher than consensus estimate, to 2.2 per cent; and more than 1.8 per cent in Q2FY25 and 2 per cent in Q1FY25. Net slippages also surged 48 per cent Q-o-Q, with net retail slippages as a percentage of loans at 2.1 per cent versus 1.7 per cent Q-o-Q. Specific credit cost went up sharply from 58bp Q-o-Q to 86bp Q-o-Q, highest among large banks and highest since Covid,” the brokerage pointed out. On the bourses, Axis Bank share price tumbled 6.3 per cent intraday to hit a fresh 52-week low of Rs 974.45 per share. The stock ended 4.6 per cent weak in the BSE at Rs 992.45 per share as against a 0.55 per cent fall in the benchmark BSE Sensex index.
On Thursday, Axis Bank reported fresh slippages of Rs 5,432 crore for Q3FY25, up 46 per cent year-on-year (Y-o-Y) and 22.25 per cent Q-o-Q. This included Rs 4,923 crore from the retail portfolio; Rs 215 crore from SME (small and medium enterprise) business; and Rs 294 crore from wholesale business.
The bank’s loan-loss provisions shot up to Rs 2,185 crore in Q3 as against Rs 1,441 crore in Q2FY25 and Rs 691 crore in Q3FY24.
It also saw worsening of asset quality during the recently concluded quarter with gross non-performing asset (GNPA) ratio at 1.46 per cent as against 1.44 per cent at the end of the September quarter. Net NPA ratio, too, rose to 0.35 per cent from 0.34 per cent in Q2FY25.
On the business front, Axis’ loan book grew 9 per cent Y-o-Y and 1.5 per cent sequentially to Rs 10.14 trillion, driven by 11 per cent Y-o-Y growth in retail loans. Deposits, too, increased 9 per cent Y-o-Y and 0.8 per cent Q-o-Q. The growth is below peers and industry average.
Moreover, the bank’s loan-to-deposit ratio (LDR) rose from 92 per cent in Q2FY25 to 92.6 per cent this quarter.
The management believes FY25 credit growth will be anchored by deposit growth/LDR, which, analysts think, is still a challenge.
NIM, too, contracted by 6bps Q-o-Q to 3.93 per cent, including 3bps Q-o-Q contribution from interest reversal on NPAs and 3bps due to higher liquidity coverage ratio (LCR; up by 400bps Q-o-Q to 119 per cent).
“Credit growth moderation was mainly driven by slowdown in the bank’s retail book (including unsecured loans and corporate book), which is likely to stay soft amid liquidity and asset quality challenges. The management believes unsecured loan stress will remain elevated near-term, but seasonal stress in the agri portfolio should ease Q-o-Q. Building in the slower credit growth and higher loan provisions, partly offset by moderating opex, we cut earnings by 3-9 per cent over FY25-27E,” noted those at Emkay Global Financial Services.
The brokerage, too, has cut its share price target to Rs 1,300 from Rs 1,400, but retained its ‘Buy’ rating as it believes the stock has seen sharp correction recently (down 10 per cent in 3 months) and trades at relatively lower valuations of 1.3-times December, 2026, adjusted book value (ABV) for a bank still delivering healthy 1.7-per cent return on asset (RoA) and 14-16 per cent return on equity (RoE).
Given the strong growth in Q4FY24 and slower accretion in 9MFY25, the base effect gets adverse in Q4FY25 on deposits and loan growth. So, even with higher Q-o-Q deposit growth, the YoY growth in deposits could fall further to 6 per cent Y-o-Y, cautioned analysts at Nuvama with a ‘Buy’ rating.
“We keenly monitor near-term growth as the LDR is still high, which will constrain credit growth, while continued re-pricing of deposits may keep margins in check. We cut our FY26E/FY27E earnings by 4-5 per cent and estimate FY26E RoA/RoE of 1.6 per cent/14.6 per cent. While the near-term growth and asset quality performance will likely remain suppressed, reflecting the stress in the macro environment, we see limited downside risk from the current levels,” said analysts at Motilal Oswal Financial Services as it retained a ‘Neutral’ rating with a lower share price target of Rs 1,175.
Axis Bank’s Q3FY25 net profit stood at Rs 6,034 crore, rising a meagre 4 per cent Y-o-Y. Its net interest income (NII) grew 9 per cent Y-o-Y/0.9 per cent Q-o-Q to Rs 13,606 crore.
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