Axis Bank Q2 Results Preview: Margin will continue under pressure; Net profit anticipated to increase 12% YoY to 5,970 crore

On Wednesday, October 25, 2023, Axis Bank will release its financial results for the second quarter of FY24. Although margins are anticipated to continue under pressure, in keeping with a larger trend in the whole banking industry, the private sector lender is anticipated to record respectable profit growth with a gain in net interest income.

In Q2FY24, the banking industry's total credit growth remained strong at 15% YoY, mostly driven by unsecured loans and a little uptick in corporate credit. The RBI's mini-demonetization of the 2,000 note has helped deposit growth increase to 13% YoY, and banks are now providing higher term deposit rates. These developments, together with accelerating CASA cannibalization, are likely to support financing costs. 

Axis Bank's net profit is anticipated to increase by 12% year over year (YoY) to $5,970 crore in the quarter ending September 2023 from $5,329.8 crore in the same quarter of previous year.

Net interest income (NII) for the firm is forecast to increase by 15% to $11.914 billion in Q2 FY24 from $10,360.3 billion in Q2 FY23. Due to the increased cost of funds, net interest margin (NIM) is anticipated to be somewhat lower sequentially.

The bank anticipates that margin shrinkage in Q2 will be controlled after a steep margin decrease in the previous two quarters. 

The combination of these two is anticipated to boost profitability. There are currently no indications of more stress, thus slippages are projected to stay virtually unchanged QoQ, according to brokerage company Emkay Global Financial Services.

It anticipates that Axis Bank's Pre-Provision Operating Profit (PPoP) for the quarter of July to September would climb 17.2% to 9,044.9 crore from 7,716.2 crore in the same period of the previous year.

Loan increase of around 20% YoY (3% QoQ as YoY is still not comparable due to Citi's purchase) is factored in by Kotak Institutional Equities. 

"We are factoring in a NIM fall of around 5 basis points QoQ, driven by the increased cost of deposits. As in prior quarters, we anticipate a slight shift in favor of higher-yielding loans in the loan mix. 

We anticipate slippages of $42 billion (less than 2% of loans), mostly driven by the retail sector. Slippage trends and overall asset quality trends shouldn't be very concerning and should be generally steady, according to Kotak Institutional Equities.

The brokerage firm anticipates Axis Bank to set aside more money for merger-related costs. The advancement of NIM, Citi integration, and short-term growth patterns would be the main debate points for the quarter.

Motilal Oswal Financial Services anticipates that the private lender's margin will be under pressure, cost ratios will be increased, and loan cost will be under control. It anticipates further solid company development.

Loan growth at Axis Bank is anticipated to be 22% for the quarter under review, while deposit growth is anticipated to be 20.7 on an annual basis.

"Due to the peculiar development trajectory, sequential loan growth will be in the range of 4%. Due to the cost of deposits finally catching up, NII growth will be a little slower than loan growth. NIM will therefore be somewhat reduced sequentially as a result. Growth in sequential fee revenue will roughly correspond to loan growth. Opex growth will trail loan growth somewhat, according to Yes Securities.

Sequential stability is anticipated for asset quality. On a sequential basis, slippages would remain mostly steady, but provisions would slightly increase because of prudential provisioning.

The share price of Axis Bank has been stable this year. In the last month, the stock has dropped more than 5%, and over the past three months, it has been unchanged.

Shares of Axis Bank have increased by slightly over 3% YTD, while the stock has increased by 7% over the previous year.

On the BSE, Axis Bank shares closed the day on Monday at 963.45, down 1.72%.