Axis Bank’s third quarter performance drew largely positive commentary from Morgan Stanley, Jefferies and Kotak Securities, with all three brokerages highlighting improving internals, better asset quality trends and a strengthening case for re-rating, even as headline earnings growth remained modest.
On valuations, Morgan Stanley maintained Overweight and raised its target price to Rs 1,650, citing a stronger core franchise and a strengthening re-rating setup. Jefferies reiterated Buy and raised its target price to Rs 1,550, saying valuations remain attractive and Axis Bank continues to be among its top picks. Kotak Securities maintained Buy and raised its target price to Rs 1,500, pointing to a firm recovery and improving convergence with peers.
Jefferies said Axis Bank reported largely flat year-on-year earnings, with profit rising about 3%, driven by a similar growth in operating profit. Revenues grew around 5% year-on-year, while operating expenses increased a modest 4% year-on-year. A key positive was the sharp 35% quarter-on-quarter decline in provisions, which Jefferies said points to improving asset quality trends.
Morgan Stanley noted that the bank’s third quarter profit of around Rs 6,500 crore came in ahead of its estimates, supported by a stronger topline, lower credit costs and controlled operating expenses.
On loan growth, Jefferies said growth accelerated to nearly 15% year-on-year, led by SME loans, which grew about 22% year-on-year, and corporate loans, which expanded around 25% year-on-year. Retail loan growth remained sluggish at roughly 5% year-on-year. Morgan Stanley also highlighted a pick-up in loan growth to about 14% year-on-year, driven by corporate and SME segments.
While retail growth stayed soft at around 6% year-on-year, Morgan Stanley said management expects an improvement in retail disbursements, which should support better retail loan growth in the coming quarters. Kotak Securities said the improving loan growth trajectory shows the bank is steadily recovering from the stress that had emerged in its retail loan book, with performance beginning to converge with frontline peers.
Margins remained under pressure due to the rate cycle. Jefferies pointed out that net interest margin declined by around 10 basis points quarter-on-quarter to about 3.6%, reflecting both rate cuts and loan mix. Morgan Stanley said margins were relatively resilient despite this pressure, aided by a meaningful moderation in deposit costs. However, it expects some near-term pressure on NIMs to persist due to recent and potential future policy rate cuts.
On the liability side, Morgan Stanley said deposit growth improved to about 15% year-on-year, while deposit costs declined sharply, down more than 35 basis points year-on-year. This helped limit the impact of lower rates on margins. Net interest income grew around 5% year-on-year, while fee income rose about 12% year-on-year. Jefferies added that CASA deposits continued to grow at a healthy pace, supporting overall funding stability.
Asset quality was a key area of comfort for brokerages. Jefferies said headline asset quality remained stable quarter-on-quarter, with slippages flat at around 2% levels despite the December quarter being seasonally weak. Credit costs declined to around 80 basis points, a sharp sequential improvement.
Morgan Stanley said asset quality continued to improve, with gross NPAs at about 1.4% and provision coverage at roughly 70%, and expects lower credit costs to support earnings normalisation in fiscal 2027 and financial year 28. Kotak Securities emphasised that concerns around rising stress in unsecured and retail loans have not materialised, supporting a more constructive outlook.
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