Axis Bank , India's third-largest private sector lender, reported a 4% year-on-year decline in net profit for the first quarter, as higher provisions offset growth in core income.

Key Highlights

• Net profit fell to ₹5,806.00 crore from ₹6,035.00 crore in the same quarter last year
• Net interest income (NII) grew marginally by 1% to ₹13,560.00 crore
• Non-interest income surged 25% to ₹7,258.00 crore
• Operating profit rose 14% to ₹11,515.00 crore
• Provisions nearly doubled to ₹3,948.00 crore from ₹2,039.00 crore a year ago

Asset Quality Impacted by Technical Factors

The bank's asset quality metrics were impacted by what it termed as "Technical Impact" - the prudent application of technical parameters for recognizing slippages and upgrades. As a result:

• Gross non-performing assets (NPAs) ratio rose to 1.57% from 1.54% a year ago
• Net NPA ratio increased to 0.45% from 0.34% in the same quarter last year
• Provision coverage ratio declined to 71% from 78% a year earlier

Excluding the Technical Impact, the gross NPA ratio would have been 1.41% and net NPA ratio 0.36%.

Strong Growth in Core Income

Despite the dip in profits, Axis Bank saw healthy growth in its core income streams:

• Fee income grew 10% year-on-year to ₹5,746.00 crore
• Retail fees rose 9%, constituting 70% of total fee income
• Corporate and commercial banking fees increased 13% to ₹1,695.00 crore

Steady Loan Growth

The bank's advances grew 8% year-on-year to ₹10,59,724.00 crore as of June 30. Retail loans, which account for 59% of the total loan book, grew 6% to ₹6,22,960.00 crore.

Capital Position Remains Strong

Axis Bank maintained a robust capital position, with its Capital Adequacy Ratio (CAR) standing at 16.85% and CET1 ratio at 14.68% as of June 30.

Management Commentary

Amitabh Chaudhry, MD & CEO of Axis Bank, stated: "We are optimistic as we step into the new fiscal year. With supportive regulatory conditions, the operative landscape is turning favorable. We believe large, well-capitalized banks like Axis with strong digital capabilities and innovative product suites are best suited to seize the opportunity."

Analyst Reactions

Following the Q1 results, Nuvama and JPMorgan downgraded Axis Bank stock, citing concerns over Net Interest Margins (NIMs) and limited upside potential. Nuvama reduced its price target to ₹1,180.00 from ₹1,400.00, while JPMorgan lowered it to ₹1,265.00 from ₹1,315.00. However, other firms like Bernstein, CLSA, and Investec maintained positive ratings with slight price target adjustments.

Out of 52 analysts covering the stock, 42 maintain 'buy' ratings and 10 have 'hold' ratings, with no 'sell' recommendations.

Outlook

While the increase in provisions and technical impact on asset quality metrics are near-term challenges, Axis Bank's strong core income growth and robust capital position provide a solid foundation for future growth. The bank's focus on digital initiatives and its optimistic outlook on the operating environment suggest it is well-positioned to capitalize on opportunities in the evolving banking landscape. However, investors should consider the recent analyst downgrades and concerns over NIMs when evaluating the stock.

Axis Bank , India's third-largest private sector bank, has released its financial results for the first quarter, showcasing a mixed performance with strong operational growth but some asset quality challenges.

Operating Performance

The bank reported a robust 14% year-over-year increase in operating profit, which reached ₹11,515.00 crore for Q1. This growth was driven by a 25% jump in non-interest income and effective cost control measures. Fee income grew by 10% YoY, with retail fees up 9% YoY. The bank maintained positive operating jaws, with operating revenue up 8% YoY while operating expenses grew only 2% YoY.

Net Interest Income and Margins

Net Interest Income (NII) saw a modest 1% YoY growth to ₹13,560.00 crore. However, the Net Interest Margin (NIM) contracted to 3.80% for the quarter, down from 4.05% in the same quarter of the previous year.

Asset Quality

The bank's asset quality metrics were impacted by what it termed as "Technical Impact" - the prudent application of technical parameters for recognizing slippages and consequent upgrades. As a result:

• Gross Non-Performing Assets (GNPA) ratio stood at 1.57%, up from 1.28% in the previous quarter
• Net Non-Performing Assets (NNPA) ratio increased to 0.45% from 0.33% in the previous quarter
• Provision Coverage Ratio (PCR) declined to 71% from 75% in the previous quarter

The bank stated that this Technical Impact adversely affected its Profit After Tax by ₹614.00 crores, Return on Assets by 15 basis points, and Return on Equity by 1.4%.

Loan and Deposit Growth

Advances grew by 8% YoY and 2% QoQ to ₹10,59,724.00 crore. The bank's focus segments, including Small Business Banking (SBB), SME, and Mid-Corporate, showed healthy growth. Total deposits increased by 9% YoY to ₹11,61,615.00 crore.

Digital Banking and Payments

Axis Bank maintained its strong position in digital banking and payments:

• Continued market leadership in UPI Payer PSP space with ~32% market share
• Ranked among the largest players in Merchant Acquiring business with ~19.7% terminal market share
• Acquired ~0.79 million new credit cards in Q1

Capital Position

The bank's capital position remained strong, with Capital Adequacy Ratio (CAR) at 16.85% and CET1 ratio at 14.68%. The bank reported a net accretion to CET-1 of 62 bps YoY and 1 bps in Q1.

Commenting on the results, Amitabh Chaudhry, MD & CEO of Axis Bank, said, "We are optimistic as we step into the new fiscal year. With supportive regulatory conditions, the operative landscape is turning favourable. We believe large, well-capitalised banks like Axis with strong digital capabilities, innovative product suites are best suited to seize the opportunity."

Despite the challenges in asset quality, Axis Bank's strong operational performance and digital banking initiatives position it well to capitalize on the evolving banking landscape in India.