Axis Bank Q2 preview: Profit may surge 30-50%; margin expansion likely

Axis Bank may report 35-50 per cent year-on-year (YoY) surge in net profit for the September quarter on a 20-30 per cent rise in net interest income (NII). Net interest income (NIM) is seen expanding on both sequential and YoY basis. While slippages may remain elevated sequentially, better recoveries should bring non-performing assets (NPAs) lower, analysts said.

Shares of Axis Bank have outperformed larger private banking peers, climbing 19 per cent year-to-date compared with a 17 per cent jump in ICICI Bank and a 4 per cent drop in HDFC Bank.

Nuvama Institutional Equities (erstwhile Edelweiss) said Axis Bank may surprise positively in Q2, given the low base of margins relative to other large banks, a substantial improvement in loan mix over the last one year and faster than expected repricing of EBLR linked loans.
 
The brokerage sees profit growing 49.6 per cent YoY to Rs 4,690 crore on a 28.9 per cent YoY rise in NII at Rs 10,180 crore. NIM is seen improving to 3.83 per cent from 3.60 per cent in June quarter and 3.39 per cent in the year-ago quarter. Provisions are seen at Rs 800 crore against Rs 360 crore in June and Rs 1,740 crore in the year-ago quarter.

Emkay Global sees healthy profitability on a lower base, led by better growth, margins and contained credit cost. This would partly be offset by higher opex, the brokerage said.

"Bank is unlikely to reverse Covid-contingent provisions. Slippages may remain elevated, but better recoveries should drive down NPAs," Emkay said. This brokearge sees profit rising 37.7 per cent to Rs 4,315.30 on a 21.5 per cent YoY rise in sales at 9,600 crore. NIM is seen at 3.7 per cent.

Sequential estimates

YES Securities, which is expecting profit to grow 32.2 per cent YoY at Rs 4,141 crore, said sequential loan growth would be moderately positive due to the bank bouncing back from a weak June quarter, when corporate loan de‐growth had dragged overall growth.

"Sequential NII growth would be healthy due to positive loan mix changes and yield on advances evolving higher at a faster pace than cost of deposits due to repricing of externally benchmarked loans, implying NIM expansion on sequential basis," it said.

The same brokerage expects sequential fee income growth would be reasonable due to some bounce‐back from a weak Q1. Treasury income would be weak but not as much as June quarter as government bond yield has been sequentially flattish, YES Securities said, adding treasury income moves the needle less for Axis Bank as it is a small part of total non‐interest income for the bank.

Provisions would rise materially on sequential basis due to a low absolute level of provisions in June quarter, it said.

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