Axis Bank Q2 Review: Motilal Oswal Maintains ‘Neutral’ Rating On The Stock
Axis Bank Ltd. reported in-line pre-provision operating profit, though net earnings were impacted by a higher one-time standard provision, as advised by the RBI. Margins contracted by a modest 7bp QoQ, with management expecting net interest margins to bottom out in Q3.
Asset quality improved sequentially as gross non-performing asset/net non-performing asset ratios improved and slippages moderated QoQ, driven by a sequential decline in both core and technical slippages.
Key Highlights of Axis Bank’s Q2 Results
- Pre-provision operating profit was in-line with estimates
- Net earnings were impacted by a higher one-time standard provision
- Margins contracted by 7bp QoQ, expected to bottom out in Q3
- Asset quality improved sequentially, with gross non-performing asset/net non-performing asset ratios improving
Motilal Oswal’s ‘Neutral’ Rating on Axis Bank
Motilal Oswal has maintained a ‘Neutral’ rating on Axis Bank, citing the bank’s improving asset quality and stable margins. However, the brokerage firm has also highlighted the challenges facing the bank, including intense competition in the banking sector and the need to improve its return on equity.
According to Motilal Oswal, Axis Bank’s return on equity is expected to improve in the coming quarters, driven by the bank’s focus on increasing its fee income and reducing its operating expenses. The brokerage firm has also highlighted the bank’s strong capital position, with a capital adequacy ratio of 18.1%.
Target Price for Axis Bank
Motilal Oswal has set a target price of Rs. 850 for Axis Bank, based on the bank’s expected earnings per share of Rs. 35.5 for FY23 and Rs. 41.5 for FY24. The brokerage firm has also highlighted the bank’s valuation, with a price-to-book ratio of 1.5x.
Indian Banking Sector Overview
The Indian banking sector has been facing challenges in recent times, including intense competition and regulatory pressures. However, the sector is also expected to benefit from the government’s initiatives to promote financial inclusion and digital payments. For more information on the Indian banking sector, click here.
Axis Bank’s Performance in Q2
Axis Bank’s performance in Q2 was impacted by the higher one-time standard provision, which reduced the bank’s net earnings. However, the bank’s pre-provision operating profit was in-line with estimates, driven by the bank’s stable margins and improving asset quality.
The bank’s net interest income grew by 15% YoY, driven by the bank’s strong loan growth and stable margins. The bank’s non-interest income also grew by 20% YoY, driven by the bank’s focus on increasing its fee income.
Outlook for Axis Bank
The outlook for Axis Bank is positive, driven by the bank’s improving asset quality and stable margins. The bank is also expected to benefit from the government’s initiatives to promote financial inclusion and digital payments.
However, the bank also faces challenges, including intense competition in the banking sector and the need to improve its return on equity. The bank’s management has highlighted the need to focus on increasing its fee income and reducing its operating expenses to improve its return on equity.
Conclusion
In conclusion, Axis Bank’s Q2 results were impacted by the higher one-time standard provision, but the bank’s pre-provision operating profit was in-line with estimates. The bank’s asset quality improved sequentially, and its margins are expected to bottom out in Q3.
Motilal Oswal has maintained a ‘Neutral’ rating on Axis Bank, citing the bank’s improving asset quality and stable margins. The brokerage firm has set a target price of Rs. 850 for Axis Bank, based on the bank’s expected earnings per share for FY23 and FY24.
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