Axis Bank delivered a resilient Q4FY25 performance that underscores the private lender’s continued adaptability amid a shifting rate cycle and liquidity landscape. LKP Securities reaffirmed its BUY rating on Axis Bank, projecting a target price of Rs 1,395, implying a 16% upside from the current market price of Rs 1,207. The thesis rests on strong momentum in advances, improving deposit mix, stabilizing asset quality, and a sustainable return on equity profile. Here’s a point-wise breakdown of why Axis remains a top pick for medium-term banking sector investors.

Healthy Earnings Backed by NII Growth and Controlled Provisions

Axis Bank posted a net profit of Rs 71 billion in Q4FY25, a 12.9% QoQ increase, aided by lower provisions and healthy net interest income.

Net interest income (NII) rose 5.5% YoY to Rs 138 billion, driven by an 8% YoY growth in advances.

Net interest margin (NIM) stood at 4.0%, improving sequentially by 4 bps, despite a 9 bps YoY compression due to higher cost of funds.

Provisions declined 36.9% QoQ to Rs 14 billion, reflecting better asset quality in the corporate loan book.

LKP notes that the bank outperformed expectations by posting a stable pre-provision operating profit (Rs 108 billion), even amid pressure on non-interest income.

Loan Growth Broad-Based; Retail and SME Segments Show Strength

Axis Bank’s loan book expanded 7.8% YoY and 2.6% QoQ, led by a strong performance in retail and SME lending.

Retail loans rose 6.8% YoY, with solid traction in LAP and credit cards.

SME loans grew a robust 13.2% YoY, underscoring Axis’s aggressive push in high-yielding, granular credit.

Corporate loan quality improved significantly, aiding the overall asset quality matrix.

Total advances stood at Rs 10.4 trillion, and LKP expects a loan growth CAGR of 12.7% over FY25–FY27, driven by branch expansion, deposit mobilisation, and retail product innovation.

Deposits Climb on CASA Momentum and Branch Expansion

Deposits increased 9.8% YoY and 7% QoQ, with savings and current account deposits showing sequential acceleration.

Term deposits grew 14% YoY—reflecting rising interest rates and consumer preference for fixed-income options.

CASA deposits rose 10.5% QoQ, taking the CASA ratio to 41%, up from 39% in Q3FY25.

The credit-deposit (CD) ratio declined to 88.7% from 92.5%, creating more headroom for incremental loan growth.

The bank added 500 new branches in FY25, significantly aiding retail deposit traction and building franchise strength in semi-urban and rural markets.

Asset Quality on Firmer Ground, NPA Ratios Improve

Gross NPA and net NPA ratios improved materially in Q4FY25.

Gross NPA ratio fell to 1.28% from 1.46% in Q3FY25.

Net NPA improved to 0.33% from 0.35%.

Total slippages dropped 11.5% QoQ to Rs 48 billion, with recovery momentum intact in the unsecured retail segment.

The provision coverage ratio (PCR) moderated slightly to 74.6%, still sufficient given the low slippage environment. LKP sees no red flags on offshore exposure or unsecured retail portfolios in the short term.

Cost Efficiency Mixed, but Operating Leverage Expected

The cost-to-income ratio rose 84 bps YoY to 47.8%, reflecting higher opex tied to distribution expansion and technology investments.

Total operating expenses grew 5.6% YoY, while employee costs remained flat QoQ.

With margin compression expected in 1HFY26 (due to repo rate transmission), Axis plans to offset via cost moderation and deposit repricing.

As newer branches and digital initiatives scale, operating leverage will improve, helping maintain stable return ratios.

Citibank Acquisition Adds Premiumization and Synergies

The integration of Citibank’s retail portfolio has been largely completed.

The move has enhanced the bank’s customer base quality, especially in affluent segments.

Credit card business benefits from seasoned Citi customers, leading to better spend per card metrics.

LKP believes these synergies will expand fee income and strengthen the premium positioning of Axis’s retail book.

Capital Strength, Liquidity Comfortable

Axis Bank remains well-capitalized with robust liquidity buffers:

Total capital adequacy ratio (CAR) at 17.1%, with Tier-1 capital at 15.1%.

Liquidity coverage ratio (LCR) improved by 340 bps over three years, now at 118%.

The bank’s balance sheet grew 5.5% QoQ to Rs 16.1 trillion, showing prudent leverage and funding structure.

Valuation and Investment Levels

LKP values Axis Bank at 1.8x FY27E adjusted book value (ABV) of Rs 774, arriving at a target price of Rs 1,395 per share.

Current price: Rs 1,207

Target upside: 16%

P/E on FY27E: 11.1x

P/ABV: 1.6x

Return ratios expected to stabilize at:

RoE: 16% in FY25, 15% by FY27

RoA: 1.7% steady over FY25–27

These metrics suggest Axis offers an attractive entry point, especially when compared with peers trading above 2x ABV.

Technical and Strategic Investor Guidance

Support levels: Rs 1,150–1,170

Resistance zones: Rs 1,325–1,340

Investor strategy: Accumulate near Rs 1,200 for a medium-term upside of Rs 1,395. Traders can look for breakout entries above Rs 1,340 with trailing stop losses at Rs 1,250.

Conclusion: Axis Positioned for Cyclical and Structural Upside

Axis Bank’s Q4FY25 performance reinforces its stature as a fundamentally sound, well-diversified private bank, poised to benefit from India’s structural credit growth revival. With margin resilience, stable asset quality, cost discipline, and strong deposit traction, the bank is likely to deliver a healthy earnings CAGR of 13% over FY25–27.

LKP’s reiteration of a ‘BUY’ reflects confidence not only in Axis’s near-term profitability but also in its long-term retail strategy, digital transformation, and post-Citi integration. For equity investors seeking value within large-cap banking, Axis remains a compelling proposition.

Recommendation: BUY | Target Price: Rs 1,395 | CMP: Rs 1,207 | Upside Potential: 16%
Disclaimer: Investors should perform independent diligence before making investment decisions.