Axis Bank shares trade volatile after Q2 results; core performance strong but provisions increase

Axis Bank’s share price opened over 2% higher on Thursday morning despite weakness in Sensex, however, soon the private lender was down 1.8% as the benchmark recovered some of its losses. Axis Bank reported its July-September quarter results on Wednesday, where its net profit increased to Rs 1,682 crore against a net loss of Rs 112 crore in the same period last year. Results displayed strong core performance where net interest income increased 20% on-year basis and fee income increased 4%. Stocks of Axis Bank have gained 65% from their March lows and is now at Rs 501 per share.

Profit before tax came in lower for Axis Bank as provisions continued to be higher. NPA provisions were at Rs 588 crore but other provisions were at Rs 3,992 crore, up 389% from the previous year. Axis Bank’s management informed that it made provisions of over Rs 6,900 crore. Axis Bank made incremental provisions of Rs 1,280 crore towards loans under moratorium and Rs 1,86o crore towards probable restructuring, aggregating to Rs 3,140 crore and taking cumulative additional provision of Rs 10,800 crore which is 1.9% of advances.

Net interest margin expansion of 18 basis points, loan growth of 12% buoyed by secured retail lending and better rates for corporate loans, retail disbursements back to 95% of last year’s levels are some factors that ICICI Securities says imparts confidence in Axis Bank. ICICI Securities has maintained their ‘Buy’ call with a target price of Rs 636 on Axis Bank. Analysts at Kotak Securities too are optimistic about Axis Bank’s performance while pinning a fair value of Rs 600 per share. “We like the franchise for its superior franchise at inexpensive valuation and believe it would come out of this crisis relatively stronger,” Kotak Securities said.

Axis Bank’s loan growth was better‐than expected during the quarter, increasing 11% on-year basis. Corporate portfolio expansion was driven by A and above rated loans, SME book growth was aided by disbursements under ECLGS scheme. However, the bank has not delved into details of the moratorium book when compared to other private peers. “The stand‐alone bank trades at 1.4x FY22 P/ABV, and represents an attractive risk‐ reward,” said Yes Securities which has a target price of Rs 585 on the stock.