Axis Bank shares under pressure after Q4 net loss; analysts upbeat on the lender

• The lender reported a loss of ₹5,728 crore for the March quarter as against a net profit of ₹4,118 crore a year ago.
• During the quarter, the lender reported an exceptional item of ₹12,490 crore, which went into the acquisition of Citibank’s India consumer business.
• Following the reported loss, the share price of the bank fell 3% to ₹855 per share.
• However, analysts are bullish on the private lender’s growth going ahead.

Shares of Axis Bank slipped 3% on Friday as the lender reported a net loss of ₹5,728 crore for the March quarter as against a net profit of ₹4,118 crore a year ago, due to a one-time cost incurred on the acquisition of Citibank’s India consumer business.

During the March quarter, the lender reported an exceptional item of ₹12,490 crore, which went into the acquisition. Axis Bank completed the acquisition of Citibank India Consumer Business, comprising loans, credit cards, wealth management, and retail banking operations on March 1, 2023.

Analysts polled by Bloomberg had estimated a net profit of ₹2,531.6 crore for the fourth quarter.

Following the reported loss, the share price of the bank fell 3% to ₹855 per share, while the Nifty Bank index was up 0.01%.

Analysts, however, are bullish on the private lender’s growth going ahead.

“We believe Axis Bank is well-poised for a re-rating as most of the key headwinds are behind the bank. The focus is shifting back to core business performance hereon. We don’t see material risk to our earnings forecast, as we are conservative on some of the key variables such as net interest margin and loan growth. The ability to converge its valuation multiples with the frontline banks such as ICICI Bank and HDFC Bank would require the bank to give greater comfort on deposits, cost of deposits and consistent loan growth,” said a report by Kotak Institutional Equities.

Analysts at JM Financial believe that the share valuations of the bank are inexpensive currently and may move upwards from here.

On an average, the brokerages expect the stock price to run up by 28% from current levels.

Business metrics remains strong for the private lender
Asset quality of the private bank improved with the gross non-performing assets (NPA) falling 80 basis points on year to 2.02% and the net NPA reducing by 34 basis points to 0.39% for the March FY23 quarter. Net interest income in the March quarter grew 33% on year and 2% sequentially to ₹11,742 crore.

“Business growth was healthy, led by strong traction across segments. Asset quality continued to improve with moderation in slippages and healthy trends in recoveries and upgrades,” said analysts at Motilal Oswal.

The loan book grew 7% sequentially in 4Q FY23, with retail/small and medium-sized enterprises (SME) loans up 7% on quarter and corporate loans growing at 6%.

Axis Bank remains committed to bringing down the cost-to-assets ratio to 2% in the medium term, say analysts. Loan growth for FY24 is expected to be 400-600 basis points higher than the industry. Further, the bank is planning to add close to 500 branches in FY24.

“In our view, transformation is in the right direction with sustaining loan growth momentum, improvement in liabilities profile, robust asset quality resulting in low credit costs and steadily improving return profile. Delivery on the loan growth momentum and sustenance of NIMs will be critical factors which can drive the rerating for the stock,” said a report by JM Financial.

The bank says that the strategic acquisition of the Citibank business strengthens its position among large private lenders in India and will help accelerate its premium market share growth. The acquisition was carried out in seven months post receipt of CCI approval.

"With the acquisition of Citibank India Consumer Business, we welcomed over 2.4 million new customers and ~3200 employees to the Axis family. The deal bolsters our market presence, especially in the growth of our premium market share across wealth and cards. We are working on the synergies, some of which are already yielding favorable outcomes,” said Amitabh Chaudhry, managing director and chief executive officer at Axis Bank in an exchange filing on Thursday.

Excluding the acquisition, Axis Bank said it would have reported a net profit of ₹6,625 crore for the March quarter, a 61% growth over last year.


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