On Friday, Investec maintained a Buy rating on Axis Bank Ltd. (AXSB:IN) stock but reduced the price target from INR1,340.00 to INR1,298.00. The adjustment follows the bank's recent quarterly performance, which saw a slight decline in net interest margins (NIMs) by 4 basis points quarter-over-quarter and weaker growth in core fees. Despite these figures, the bank's return on assets (RoAs) outperformed expectations, standing at 1.84%, propelled by an increase in treasury gains and a lower tax rate resulting from provision reversals during the quarter.
The bank's asset quality performance was better than anticipated, with a 20 basis point quarter-over-quarter decrease in the gross slippages ratio. Additionally, retail net slippages also showed improvement compared to the previous quarter. However, near-term growth prospects for Axis Bank appear to be subdued due to liquidity constraints, evidenced by a credit-to-deposit ratio of 92% and a liquidity coverage ratio of 115%.
Investec has slightly lowered its estimates for Axis Bank based on the weak core pre-provision operating profit (PPoP) reported for the quarter. Despite the bank's current liquidity challenges and the adjustment in estimates, Investec's analysis suggests that at 1.6 times the fiscal year 2026 estimated price-to-book value (P/B), Axis Bank's stock presents a favorable risk-reward balance over the medium term.
Reiterating the Buy rating, Investec emphasizes the potential value in Axis Bank shares with the revised target price of INR1,298.00. The bank's recent performance, characterized by strong RoAs and better-than-expected asset quality, supports Investec's positive outlook, even as they account for the softer core earnings in their revised forecasts.
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