Q3FY23 Review: Axis Bank: Positive quarter; outlook remains strong

24 Jan 2023 , 01:02 PM

Axis Bank reported profit of Rs58.5 billion in Q3FY23, which was above estimates of IIFL Capital Services, owing to sharp margin expansion and strong treasury performance and despite higher provisions. Core PPOP grew 54% YoY / 14% QoQ. Reported RoA was 1.9% for the quarter, highest since Q1FY16. Deposit growth being higher than loan growth was a key positive and was against sector trends. Low pace of branch expansion had been a concern with total branches being flat over FY22-Q2FY23. However, Axis Bank has added 89 branches in Q3FY23 as it looks to keep pace with larger private peers. 

Loan growth in focus-segments remains strong and there are no foreseeable asset quality concerns at this point. Return ratios (RoE of ~17%), driven by lower credit costs and healthy core performance (despite higher opex) would be comparable to larger private peers. Stock is trading at 2.0x FY24 BVPS and valuation gap to larger peers could narrow further, hereon. 

Analysts at IIFL Capital Services have raised their earnings estimated by 6% for FY23 and expect Axis Bank to deliver RoA/RoE of 1.7/16.7% by FY24. Their estimates factor in CITI acquisition and Rs125 billion charge to networth in FY24.

They have maintained their Buy recommendation on the stock with a target price of Rs1,090 (2.2x September-2024 BVPS).