Axis Bank’s share price dropped over 5% on Thursday morning after the bank announced its first-quarter earnings for FY25. The shares fell by as much as 5.76%, reaching ₹1,168.25 each on the BSE.
For the quarter ending in June 2024, Axis Bank reported a net profit of ₹6,035 crore, up from ₹3,452 crore in the same quarter last year. However, this net profit was 15% lower than the ₹7,130 crore profit reported in the March quarter.
The bank’s net interest income (NII) for Q1FY25 increased to ₹13,448 crore from ₹11,959 crore year-on-year, while its net interest margin (NIM) slightly decreased to 4.05% from 4.10% last year.
The bank’s asset quality worsened, with the gross non-performing assets (NPA) ratio rising by 11 basis points (bps) to 1.54% and the net NPA ratio increasing by 3 bps to 0.34% compared to the previous quarter.
Axis Bank’s management believes that the increase in NPAs was a one-time event and should decrease in the future. They also expect that with the integration of Citi’s business now complete, costs should moderate, which will help manage any margin or loan loss provision (LLP) pressures.
Anand Dama, Senior Research Analyst at Emkay Global Financial Services, noted that Axis Bank’s earnings missed expectations by 10%. This was due to higher LLP (0.9% of loans) from increased NPAs and slower recoveries, though this was partially offset by lower operating expenses. Credit growth was moderate, but the bank benefited from a better loan-to-deposit ratio, a higher share of unsecured loans, and a one-off interest on an IT refund, resulting in stable NIMs at 4.1%.
Due to the Q1 performance and concerns over unsecured loans and LLP, Emkay Global reduced its earnings estimates for FY25-27 by about 3%. Despite this, they still expect the bank to achieve a healthy return on assets (RoA) of around 1.8%. The bank plans to raise about ₹20,000 crore in equity capital to maintain its capital adequacy ratio, which might affect its return on equity (RoE).
Emkay Global maintained its ‘Buy’ rating on Axis Bank, with a target price of ₹1,400 per share.
At 9:25 am, Axis Bank shares were trading 5.53% lower at ₹1,171.15 each on the BSE.
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