Axis Bank Shares Fall Despite Profit Rise: What It Means for Savers

Axis Bank shares declined up to 5 percent in early morning trade on Monday, despite the private sector lender reporting a 39 percent year-on-year (Y-o-Y) increase in consolidated net profit for the second quarter of FY27 (Q2FY27). The stock opened 2 percent lower at ₹1,264.90 on the NSE and hit an intraday low of ₹1,225.30. By 10 AM, Axis Bank was trading 4 percent lower at ₹1,240, making it a top loser on both the Nifty 50 and Sensex. For the ordinary saver, this indicates that a company's stock performance isn't solely dictated by headline profit figures; other financial metrics and market sentiment play a crucial role.

Axis Bank reported a 39.4 percent Y-o-Y rise in consolidated net profit to ₹7,704.67 crore in Q2FY27, driven by higher core income and improved asset quality. On a standalone basis, net profit rose 37.6 percent Y-o-Y to ₹7,003.28 crore from ₹5,089.64 crore. Net interest income (NII) for Q2 FY27 was ₹15,371 crore, up 5 percent quarter-on-quarter (Q-o-Q) and 12 percent Y-o-Y, with a net interest margin (NIM) of 3.36 percent. Advances grew 23 percent Y-o-Y and 9 percent Q-o-Q to ₹13,73,727 crore, while total deposits increased 6 percent Q-o-Q and 21 percent Y-o-Y. The bank's asset quality also improved, with the Gross Non-Performing Asset (GNP) ratio at 1.16 percent and Net Non-Performing Asset (NNPA) at 0.35 percent. For savers, these strong underlying numbers suggest the bank's core business is performing well, which generally indicates stability.

However, brokerages like Motilal Oswal Financial Services (MOFSL) noted that Axis Bank's elevated operating expenses (opex) led to a slight earnings miss in Q2. Strong NII growth and lower-than-expected provisions were offset by higher opex intensity and softer treasury income. Opex grew 9 percent Y-o-Y and 11 percent Q-o-Q, including a ₹2.5 billion one-time expense related to the labor code and FCNR(B) mobilization costs. This led to the Pre-Provision Operating Profit (PPoP) growing only 6 percent Y-o-Y to ₹110.8 billion, and the cost-to-income (C/I) ratio rising to 49.4 percent from 45.5 percent. NIM was adversely impacted by 11 basis points due to FCNR(B) mobilization. The management reiterated its through-cycle NIM guidance of 3.8 percent, supported by improving retail disbursements and a better balance sheet mix. For an ordinary saver, this highlights that even good banks face operational challenges that can affect profitability and, consequently, investor confidence, even if the long-term outlook remains positive.

MOFSL reiterated a 'Neutral' stance on Axis Bank but raised its FY28E earnings estimate by approximately 5 percent, factoring in rate hikes, projecting FY28E RoA/RoE to 1.6 percent/15.1 percent, and assigned a target price of ₹1,475. Elara Capital noted that the lender lagged peers on core fundamentals despite management delivering on business growth, improved asset quality, and reduced opex to assets, primarily due to declining NIMs/top line. Elara maintained that valuations remain comfortable and recommended a 'Buy' rating with an SOTP-based target price of ₹1,572, expecting earnings support from reasonable opex to assets and benign provisioning. This demonstrates that different analysts can have varied perspectives on a stock's future, influencing market movements. For individuals, these details underscore the complexity of stock valuations beyond just quarterly profits.

What to watch: The bank's ability to manage operating expenses and maintain NIMs in the coming quarters.

Editor's note: The draft effectively summarizes the financial results and brokerage commentary, maintaining accuracy regarding the figures provided in the text.