Axis Bank Q1 Results: Profit Jumps, But NPAs Cast Shadow on Stock
Despite reporting a 4% increase in Q1 FY25 net profits, Axis Bank shares plunged over 6% due to rising concerns over asset quality. Explore the key financial highlights and the impact on stock performance.
On July 25, shares of Axis Bank plunged over 6%, even though the lender reported a net profit of Rs 6,035 crore in the June quarter, a 4% increase from the previous year and exceeding market forecasts of Rs 5,797 crore. However, concerns regarding the bank’s asset quality overshadowed these figures, leading to a dip in investor confidence.
Key Financial Highlights and Concerns
Increase in Non-Performing Assets (NPAs)
The primary worry for investors was the increase in non-performing assets (NPAs). The lender’s gross NPAs edged up by 11 basis points sequentially to 1.54%, while net NPAs saw a slight rise of 3 basis points, settling at 0.34%. Management attributed this uptick to seasonal patterns affecting the retail agriculture sector in the first quarter.
Steady Operational Growth
Despite the NPA concerns, other operational metrics of Axis Bank demonstrated healthy growth. The bank's net interest income (NII) grew 12% year-on-year while core pre-provision operating profit (PPOP) increased by 16% year-on-year. Nevertheless, the net interest margins (NIMs) held steady at 4.05%, maintaining the previous quarter’s figures.
Rising Credit Costs
A significant concern was the higher-than-expected credit costs, which surged due to a combination of high slippages, which stood at 1.97%, and subdued recovery rates, leading to a net credit cost of 0.97% in Q1FY25, up by 47 basis points YoY. Credit costs refer to expenses incurred by a lender due to default or potential default on loans. The bank indicated that approximately 55% of this rise was due to lower recoveries and upgrades within the corporate loan segment, with expectations of delayed recoveries stretching between one and two quarters.
Brokerage Outlook and Stock Performance
Post-results, the stock’s performance has led to mixed reviews from major brokerages:
As of 12:00 p.m., shares of Axis Bank were trading at Rs 1,159 on the NSE, marking it as the biggest loser among Nifty 50 companies.
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