Axis Bank shares fall 3% despite positive Q3 results. Know why

Private lender Axis Bank’s shares declined nearly 3 per cent on Wednesday despite reporting positive Q3 results due to concerns over margin pressure, high cost of funds, slow deposit growth, and the impact of AIF provisioning.

While the bank’s net profit for Q3FY24 grew by 4 per cent year-on-year (YoY) to Rs 6,071 crore and net interest income (NII) rose 9 per cent to Rs 12,532 crore, the net interest margin (NIM) contracted to 4.01 per cent.

This trend has been seen in the Q3FY24 results of most lenders, including HDFC Bank.

Brokerage view on Axis Bank Q3

Most brokerages issued 'Buy' calls on the private lender's stock, citing expectations of improved loan growth and attractive valuations, following Axis Bank's Q3 results.

Jefferies has maintained a 'Buy' rating with a target price of Rs 1,380 per share, anticipating 16-18 per cent loan growth and potential improvements in the deposit profile.

HSBC analysts also remained bullish, setting a target price of Rs 1,404 per share. However, they cut the private lender’s FY24-26 earnings per share (EPS) estimates by 0.3-1.5 per cent.

It is also worth noting that concerns lingered over margin pressure continuing until Q1FY25 due to the higher cost of funds, leading to a contraction in net interest margins (NIMs).

Analysts from Motilal Oswal downgraded Axis Bank to 'Neutral' with a target price of Rs 1,175 per share, considering the impact of increased costs and margin pressures, leading to an 8 per cent cut in FY25 EPS.

Additionally, the elevated credit-to-deposit (CD) ratio at 93 per cent, above RBI's preferred range of 70-80 per cent, raised concerns about limiting credit growth.

Motilal Oswal highlighted the need to monitor near-term growth, as the CD ratio constraints could impact credit expansion, and the repricing of deposits might exert pressure on margins in the coming quarters.

The brokerage also noted that the bank has a healthy liquidity coverage ratio (LCR) of 118 per cent, but added that the impact of a surge in non-retail deposits would be closely watched in the future.