Shares of Axis Bank fell 4% to Rs 808.55 on BSE in Wednesday’s intraday trading on profit booking after the bank reported weak operational performance in the September quarter ( Q2FY22). Over the past three weeks, the private sector lender is up 8%. The title had reached a record of Rs 867 on Monday, October 25, 2021.
In Q2FY22, Axis Bank’s net interest income (NII) edged up 7.8% year-on-year (YoY) to Rs 7,900 crore due to a 19 basis point year-on-year decline in net interest margins (NIM) at 3.39%. Margins were negatively impacted by 13 basis points sequentially due to the change in mix.
The bank posted 86% year-on-year growth in net profit to Rs 3,133 crore in Q2FY22, driven mainly by robust fee income growth and a sharp drop in provisions. Axis Bank had recorded a net profit of Rs 1,683 crore in Q2FY21. Credit growth for the quarter was 10.1% year-on-year to Rs 6.2 trillion, driven mainly by a 16% year-on-year rise in retail loans. Deposit growth was healthy at 18.1% yoy and 3.1% qoq to 7.3 trillion rupees.
The asset quality profile improved with gross non-performing assets (gross NPA) falling to 3.53% in Q2FY22 from 4.18% in Q2FY21. Net NPAs edged up to 1.08% in Q2FY22 from 0.98% a year ago. Its provision coverage ratio stood at 88% at the end of Q2FY22 compared to 88% at the end of Q2FY21.
The bank posted slightly lower loan growth than its peer peers and tighter margins could also be seen as a slight downside. We believe that while the long-term outlook remains bright, the near-term price could see some correction, especially given the recent rally, ICICI Securities said in a note.
“Axis Bank delivered weak core operating performance in Q2FY22, driven by lower margins, higher operating expenses and sluggish business growth. The bank exceeded our estimate. In contrast, Axis Bank’s asset quality remained stable, supported by higher recoveries and upgrades, while its slippages remain high. Total restructuring was controlled at around 0 .7% of loans,” Motilal Oswal Securities said in the earnings update.
The brokerage expects the trend of high slippages to subside from S2FY22, allowing lower credit costs. A healthy PCR of around 70%, combined with an additional provision buffer of 2.1%, is likely to protect the bank’s balance sheet from any potential stress. “We have reduced our earnings estimates for FY22/FY23E by 6%/4% to account for higher operating expenses and lower NII, and remain alert to a recovery in the bank’s operating profits We estimate that Axis Bank will deliver a RoA/RoE of 1.5%/14.6% in FY23,” the brokerage said.