Axis Bank Q1 results

Axis Bank Share Price Drops Over 5% Following Q1 Results: Is This the Right Time to Buy?

Axis Bank’s share price recently took a significant hit, dropping over 5% following the release of its first-quarter (Q1) earnings for the financial year 2024-25 (FY25). This article will delve into the details of Axis Bank’s performance, the reasons behind the share price decline, and whether this presents a buying opportunity for investors.

Q1 FY25 Earnings Overview

Net Profit Comparison with Previous Quarters:
Axis Bank reported a net profit of ₹6,035 crore for Q1 FY25, marking a substantial increase from ₹3,452 crore in the same quarter of the previous fiscal year. However, this was a 15% decline from the ₹7,130 crore net profit recorded in the March quarter.

Key Financial Metrics:

• Net Interest Income (NII): Axis Bank’s NII grew to ₹13,448 crore, up from ₹11,959 crore year-on-year (YoY).
• Net Interest Margin (NIM): The NIM slightly decreased to 4.05% from 4.10% in the previous year.

Stock Market Reaction

Details of the Share Price Drop:
Following the earnings announcement, Axis Bank’s share price plunged over 5%, reaching as low as ₹1,168.25 apiece on the Bombay Stock Exchange (BSE). By 9:25 am, shares were trading at ₹1,171.15, down 5.53%.

Market Sentiment and Investor Concerns:
The decline in share price reflects investor concerns over the bank’s performance, particularly the drop in net profit from the previous quarter and the rise in non-performing assets.

Net Profit Analysis

Year-on-Year Growth:
Despite the sequential decline, the net profit for Q1 FY25 showed impressive YoY growth, almost doubling from the same period last fiscal year.

Sequential Decline in Net Profit:
The 15% drop from the March quarter can be attributed to higher loan loss provisions (LLP) and slower recoveries, which impacted the bottom line.

Net Interest Income and Margin

Growth in Net Interest Income (NII):
The increase in NII is a positive sign, indicating that the bank’s core lending operations are performing well, with interest income from loans growing significantly.

Slight Decrease in Net Interest Margin (NIM):
The marginal drop in NIM to 4.05% from 4.10% suggests that while the bank is earning more from its lending activities, it faces slight compression in its interest spread.

Asset Quality Concerns

Increase in Gross and Net Non-Performing Assets (NPA):

• Gross NPA Ratio: Increased by 11 basis points (bps) to 1.54%.
• Net NPA Ratio: Increased by 3 bps to 0.34%.

Management’s Outlook on NPA Formation:
The bank’s management views the higher NPA formation as a one-off event and expects the situation to improve. They also believe that moderating costs, particularly post the Citi integration, will help offset any margin pressures.

Analysts’ Views and Forecasts

Emkay Global’s Analysis and Rating:
Senior Research Analyst Anand Dama noted a 10% earnings miss for Axis Bank, primarily due to higher LLP. Despite this, Emkay Global retained its ‘Buy’ rating, with a target price of ₹1,400 per share.

JM Financial’s Perspective:
JM Financial maintained a positive stance, suggesting that the current challenging environment related to deposits will gradually improve. They also retained a ‘Buy’ call with a target price of ₹1,375 per share, advising investors to utilize any meaningful corrections to add exposure.

Credit and Deposit Growth

Year-on-Year Growth in Loans and Deposits:

• Loans: Grew by 14.2% YoY.
• Deposits: Increased by 12.8% YoY.

Implications for Future Performance:
This growth indicates a strong demand for Axis Bank’s lending products and a robust deposit base, which are positive indicators for future performance.

Challenges and Opportunities

Issues Like Unsecured Loans and LLP:
The rise in unsecured loans and higher LLP poses risks but also offers opportunities for higher returns if managed well.

Potential for Equity Capital Raise:
Axis Bank has proposed raising around ₹20,000 crore in equity capital, which should help maintain a healthy capital adequacy ratio and support future growth initiatives.

Investment Recommendations

Analysts’ Target Prices and ‘Buy’ Ratings:
Both Emkay Global and JM Financial have maintained their ‘Buy’ ratings on Axis Bank, with target prices of ₹1,400 and ₹1,375 per share, respectively.

Considerations for Potential Investors:
Investors should consider the bank’s strong fundamentals, growth potential, and the positive outlook from analysts. The recent dip in share price may present a buying opportunity for those looking to invest in a leading player in the Indian banking sector.

Conclusion

Axis Bank’s Q1 FY25 results show both strengths and challenges. While the bank has reported significant YoY growth in net profit and NII, the sequential decline in profit and rise in NPAs have raised concerns. However, with strong analyst support and positive growth indicators, this dip in share price might be an opportunity for savvy investors to buy into Axis Bank at a lower price point.

FAQs

Why did Axis Bank’s share price fall?
Axis Bank’s share price fell over 5% due to concerns over the sequential decline in net profit and the increase in non-performing assets reported in its Q1 FY25 results.

What were the key highlights of Axis Bank’s Q1 FY25 results?
The key highlights include a net profit of ₹6,035 crore, a 12.5% YoY increase in NII to ₹13,448 crore, and a slight decline in NIM to 4.05%. The gross NPA ratio rose to 1.54%, and the net NPA ratio increased to 0.34%.

How did the market react to Axis Bank’s Q1 FY25 earnings?
The market reacted negatively, with Axis Bank’s share price dropping over 5% in early trade, reflecting investor concerns over the sequential decline in profit and the rise in NPAs.

What are analysts saying about Axis Bank’s future performance?
Analysts at Emkay Global and JM Financial have maintained ‘Buy’ ratings on Axis Bank, with target prices of ₹1,400 and ₹1,375 per share, respectively. They believe the bank has strong growth potential despite the current challenges.

Should investors consider buying Axis Bank shares after the recent dip?
Investors may consider buying Axis Bank shares after the recent dip, as the bank has strong fundamentals, positive growth indicators, and support from analysts who have maintained ‘Buy’ ratings with favorable target prices.

Axis Bank Q1 results

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