Axis Bank shares tumbled 6% to ₹1,249.05 on BSE and 5.97% to ₹1,249.10 on NSE on Monday, July 20, following the release of Q1 FY27 results that failed to impress investors despite strong earnings growth. The stock opened lower and witnessed sharp selling pressure as banking stocks witnessed sharp selling pressure after major private and public sector lenders announced their Q1 FY27 results over the weekend. The Nifty Bank index tumbled over 900 points in early trade, dragged by steep declines in Axis Bank, HDFC Bank, Yes Bank and Kotak Mahindra Bank, as investors reacted to earnings and management commentary. Select PSU banks bucked the broader weakness, with Punjab National Bank, Union Bank of India, Canara Bank, SBI and Bank of Baroda trading higher, reflecting continued investor preference for lenders with improving asset quality and stronger earnings momentum.
Axis Bank delivered robust first-quarter results that exceeded market expectations, with standalone net profit rising 23% year-on-year to ₹7,114 crore, as per The Economic Times. The bank's Total Operating Income grew 6% YoY to ₹40,721 crore from ₹38,322 crore in the corresponding period last year. Gross advances rose 19% YoY to ₹12.62 lakh crore with sequential growth of 2%, while total deposits increased 18.2% YoY to ₹13.73 lakh crore. CASA deposits grew 11.4% YoY to ₹5.22 lakh crore, though they declined 1.4% sequentially, while term deposits surged 22.8% YoY to ₹8.51 lakh crore. Deposits grew 6% during the quarter, indicating continued strength in the bank's funding base. Gross non-performing assets (GNPA) improved to 1.28% from 1.57% a year earlier, while net NPA declined to 0.39%.
Despite strong earnings growth, analysts broadly expect margin compression during the quarter as faster growth in corporate lending, higher wholesale funding costs and slower pick-up in higher-yielding retail loans weigh on net interest margins. Net Interest Margin contracted sharply to 3.46% in Q1 FY27 from 3.80% in the year-ago period and 3.73% in the previous quarter, as per Business Standard. Axis Bank's core net interest income in the reporting quarter grew by 8% YoY to ₹14,646 crore on the back of a 19% jump in advances, with 360 ONE Capital noting that the sequential decline in NIM was higher than expected. Axis Bank's Chief Executive and Managing Director Amitabh Chaudhry said the NIM (Net Interest Margin) is at the bottom in the current cycle, hinting that it will rise from here on but refrained from giving any aspirational number for the near future. Balance sheet growth for Axis Bank came from the corporate segment, as noted by Bernstein, which supported improvement in NII growth but came at the cost of margin compression. Asset quality saw marginal deterioration with Gross NPA at 1.28% from 1.23% in March, while Net NPA stood at 0.39% from 0.37% in the previous quarter.
A notable highlight was the sharp decline in provisions, which fell 44% year-on-year to ₹2,223 crore from ₹3,948 crore, and were also 37% lower compared with the previous quarter, as per The Economic Times. This significant reduction in provisions contributed meaningfully to the bank's bottom-line performance. The bank set aside ₹2,223 crore as provisions and contingencies, and did not draw down from the additional provisional buffer of ₹2,001 crore it had created in Q4 to cover potential risks arising out of the West Asia conflict. Provisions and contingencies for Q1 FY27 included specific loan loss provisions of ₹2,079 crore. The bank held cumulative provisions of ₹15,608 crore as on June-end, translating into a standard asset coverage ratio of 1.24%. Pre-provision operating profit grew marginally by 1% YoY to ₹11,659.10 crore, compared with ₹11,515 crore a year ago, though it increased 16% sequentially. Operating expenses rose 5% year-on-year to ₹9,722 crore from ₹9,303 crore, but declined 7% on a quarter-on-quarter basis, indicating improved operational efficiency.
Motilal Oswal Financial Services reiterated its 'Neutral' stance on Axis Bank with a target price of ₹1,500, noting that the bank reported a weak quarter with NIM witnessing a sharp contraction of 16bp Q-o-Q to 3.46%, while PAT surpassed estimates, supported by lower operating expenses and provisions. The brokerage has cut its FY27/28E earnings by around 2% each and estimates FY28E RoA/RoE at 1.6%/15.3%. 360 ONE Capital maintained its 'Buy' rating but trimmed the target price to ₹1,580 from ₹1,630, citing weak operating performance and sharp decline in NIM. The brokerage has cut FY27/28E estimates by around 9%/6% on the back of lower NIM and other income. SBI Securities said the stock trades at a P/B multiple of 1.6x/1.4x for FY27E/FY28E respectively, with the fair value estimated in the range of ₹1,350-1,400. Jefferies has maintained its 'buy' rating with a price target of ₹1,700, which is the fifth highest among analysts, calling Axis Bank's asset quality strong and citing low credit costs behind its bullish recommendations. The brokerage has raised its FY27 EPS estimates by 2% and left FY28-29 estimates largely unchanged. Bernstein has maintained its 'outperform' rating with a price target of ₹1,600, calling the current quarter mixed, while noting that a pick-up in retail deposit growth and fees will continue to aid core profitability going forward.
