Axis Bank loan growth and lower credit costs offset Q2 FY27 margin pressure
Axis Bank Ltd.
BUY
₹1,290
₹1,236.9
₹1,572
21.86%
Investment View and Valuation
Elara Securities’ October 18, 2026 result update characterises Axis Bank’s Q2 FY27 as a mixed quarter, with soft core performance partly offset by lower provisions. Elara retains its BUY recommendation and sets a sum-of-the-parts target price of Rs 1,572 per share.
The broker believes Axis Bank has lagged peers on core fundamentals despite delivering business growth, better asset quality and lower operating expenses relative to assets. Elara considers the valuation comfortable at 1.3x core adjusted book value, while identifying the path of margins, liquidity deployment and liability growth as the key issues for the investment case.
Q2 FY27 Financial Performance
Axis Bank reported net interest income growth of 5 per cent quarter-on-quarter and 10 per cent year-on-year in Q2 FY27. Core operating revenue was Rs 218.17 bn, up 10 per cent year-on-year. Core pre-provision operating profit rose 11 per cent year-on-year, while profit after tax increased 30 per cent year-on-year, supported by lower provisioning.
Profit after tax declined marginally quarter-on-quarter as higher operating expenses and lower other income offset healthy net interest income growth and lower provisions. Operating expenses included a one-off Rs 2.54 bn charge, of which more than half related to labour-code costs and the balance to FCNR(B)-linked costs.
Fee income rose 6 per cent year-on-year, with granular fees representing 90 per cent of total fees. Credit-card fees were weaker because the festive season falls in Q3 FY27 versus Q2 in the prior year.
Margin Pressure and Liability Growth
The principal operating concern is margin pressure. Reported net interest margin fell 10 basis points quarter-on-quarter to 3.36 per cent, or 3.47 per cent excluding the FCNR(B) impact. The decline reflected surplus funds parked in lower-yield investments and balance-sheet gross-up from FCNR(B) deposits. Cost of funds increased 3 basis points quarter-on-quarter.
Management expects some margin improvement from shedding bulk deposits, fixed-rate FCNR(B) liabilities in a rising-rate environment and yield pass-through on the higher floating-rate loan book. Management retained its structural net interest margin guidance of 3.8 per cent and expects the full impact of repo-rate repricing to be visible in Q3 FY27.
Business Momentum and Liquidity
Business momentum remained healthy, with loans growing 23 per cent year-on-year and 8.9 per cent quarter-on-quarter across segments. Deposits grew 20.7 per cent year-on-year and 5.8 per cent quarter-on-quarter.
Axis Bank raised Rs 1.1 tn of FCNR(B) deposits, including Rs 438 bn backed by advances from international branches and Rs 449 bn backed by standby letters of credit. These deposits have a one-year lock-in and are excluded from high-quality liquid asset calculations. Management expects retail loan growth to accelerate in the next few quarters.
Elara notes that Axis Bank needs faster liability growth to sustain momentum and must navigate stretched liquidity coverage ratio, loan-to-deposit ratio and net interest margin outcomes relative to peers.
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Asset Quality and Provisions
Asset quality improved in Q2 FY27. Slippages declined to Rs 47.6 bn from Rs 55.6 bn in Q1 FY27, while credit costs remained low at 72 basis points. Gross NPA and net NPA ratios were 1.2 per cent and 0.4 per cent respectively.
Axis Bank held Rs 80.06 bn of additional provisions through other and one-time standard-asset provisions, equivalent to about 49 basis points of capital adequacy. Management does not expect a material ongoing impact from the transition to the expected credit loss framework.
Earnings Outlook
Elara forecasts profit after tax of Rs 295.2 bn in FY27E, increasing 20.7 per cent year-on-year, followed by Rs 344.7 bn in FY28E and Rs 402.2 bn in FY29E.
| Financial year | Forecast profit after tax | Other forecast metric |
|---|---|---|
| FY27E | Rs 295.2 bn | Return on average equity: 13.4 per cent |
| FY28E | Rs 344.7 bn | — |
| FY29E | Rs 402.2 bn | Return on average equity: 14.0 per cent; operating expense to average assets: 2.1 per cent |
Target Price Construction and Risks
The target is based on 1.6x September 2028E core price-to-adjusted-book-value, implying Rs 1,453 per share for the bank, plus Rs 118 per share for subsidiaries after a 20 per cent holding-company discount.
| Component | Value per share |
|---|---|
| Axis Bank | Rs 1,453 |
| Subsidiaries, after 20 per cent holding-company discount | Rs 118 |
| Sum-of-the-parts target price | Rs 1,572 |
Key risk: Axis Bank has higher sensitivity of fee income to the IRDAI consultation paper on commission caps.
Disclaimer: This is a summary of a research report published by the broker/research house identified above. The views, recommendations, target prices and estimates are those of the respective broker and do not represent DSIJ investment advice. The summary may be AI-assisted, hence please refer to the original report for complete details, disclosures and risks.
