Shares of Axis bank Ltd tumbled 7 per cent in Friday’s trade, in-line with a steep fall in its global depository receipts (GDRs) overnight, as analysts believe credit cost was elevated and slippages were higher, even if one takes into account the ‘technical impact’ of tightening of its non-performing asset (NPA) recognition policy. Net profit for the bank fell 10 per cent short of consensus estimates.
IIFL believes Axis Bank’s tightening of its NPA recognition policy resulted in higher gross slippages (3.2 per cent against 2.1 per cent ex-technical impact), credit costs (1.5 per cent against 1.2 per cent), gross NPA (up 29 bps QoQ) and a 1 basis point NIM impact.
“Axis Bank trades at 1.4x FY27E P/B, which is at 40 per cent discount to the peer banks, and thus provides a floor to the stock price. However, with impending NIM pressure, weak AQ outlook and inconsistent execution, it is difficult to make a case for outperformance relative to the peers. Cut EPS by 4-8 per cent and target to Rs 1,280 (from Rs 1,370),” IIFL said.
Dolat Capital also believes slippage at 2.1 per cent, excluding technical slippage remained slightly elevated, as the management commentary hinted at improving delinquencies from unsecured loans.
“We factor in lower NIM and higher credit cost, partly offset by lower opex assumptions for FY26/27E, with 5-6 per cent downward revision in estimates. Maintain ‘Accumulate’ rating with revised target of Rs 1,250,” Dolat Capital said.
Axis Bank’s residual loan re-pricing will continue to pressure margins, although it has maintained its through-cycle margin guidance of 3.8 per cent. Analysts flagged two key concerns: a high C/D ratio of 91.2 per cent, which could constrain growth unless deposit mobilisation improves significantly, and that 70 per cent of the loan book is on floating rates — a risk in a falling interest rate scenario.
MOFSL said, “We cut FY26/27 earnings estimates by 8.6 per cent/5.7 per cent, factoring in higher credit cost and margin pressure. We estimate FY27E RoA/RoE at 1.6 per cent/14.6 per cent. Retain Neutral with a target of Rs 1,250.”
Nuvama noted Axis Bank has been the slowest among peers in passing on rate cuts. “Loan growth in Q1FY26 was driven by corporate and SME segments, while retail growth remained flat. We downgrade Axis Bank to ‘Hold’ due to repeated volatility in asset quality and growth. We cut FY26E/27E EPS by 5 per cent/6 per cent on an already below-consensus base and slash our target to Rs 1,180 (1.7x FY26E BV) from Rs 1,400 (2x). Axis has more catch-up on rate cuts than peers; the stock’s discount to peers is likely to widen.”
Nirmal Bang retained a relatively stable view, deriving a target price of Rs 1,287 (vs Rs 1,284 earlier), valuing the stock at 1.6x June 2027E adjusted book value — a 15.1 per cent discount to its 5-year average multiple of 1.88x ABV. “We expect average RoA/RoE of 1.6 per cent/13.8 per cent over FY25–FY27E, assuming 10.3 per cent loan CAGR, 20 bps margin compression, stable cost ratios, and some normalisation in credit costs,” it said.
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