Axis Bank more vulnerable than ICICI, Kotak on loan growth, NIM? Here are new share price targets

Higher opex dragged down profit growth for Axis Bank Ltd in the December quarter, but the growth figure came in line with the Street expectations. Analysts noted that unsecured lending not a cause of alarm for the moment but they see rise in funding cost and further moderation in net interest margin (NIM) ahead. Deposit challenges would persist through FY25, they said adding that Axis Bank is more vulnerable on loan growth and NIM compared to ICICI Bank Ltd, Kotak Mahindra Bank Ltd and other banks.

Nuvama Institutional Equities quoting Axis Bank CEO said deposit challenges would persist through FY25. In Q3FY24, 65 per cent of incremental deposits were bulk. Given higher share of bulk and deposit challenge, it finds Axis Bank more vulnerable on loan growth and NIM compared to ICICI Bank and Kotak Mahindra Bank.

"Opex ex one-offs continues to run high at 2.5 per cent-plus among the highest in the private sector while CET1 though self-funded remains among lowest. Credit cost also appears to have bottomed. As such, we do see earnings challenges for FY25E but retain ‘BUY’ on valuation," it said.

This brokerage has suggested a revised target of Rs 1,215 on the stock against Rs 1,130 earlier.

Motilal Oswal said the management has suggested that funding costs will continue to inch up over the next two quarters.

"We cut our FY25E EPS by 8 per cent considering an increase in costs and margin pressures. Moreover, with a high CD ratio being of 93 per cent, we estimate Axis Bank to deliver a 15.7 per cent CAGR in loans over FY24-26E, slower than peers’. Accordingly, we estimate FY25 RoA/RoE of 1.7 per cent/17.4 per cent," it said.

This brokerage has downgraded its rating on Axis Bank to 'Neutral' with a revised target of Rs 1,175.

After incorporating Q3 results and assuming some moderation in margins in a declining interest rate scenario in FY25E and normalisation of credit costs, Nirmal Bang tweaked its FY24 and FY25 earnings estimates by 4.5 per cent and 12.6 per cent, respectively.

"We expect the bank to have average ROA of 1.7 per cent and ROE of 16.6 per cent by over FY23-FY26E. We maintain our BUY rating with a revised target price of Rs 1,256 (Rs 1,181 earlier), valuing it at 2 times December 2025E ABV," Nirmal Bang said.

 

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