Axis Bank stock at Rs 1,000? Analysts raise targets after Q3 earnings miss

Axis Bank stock at Rs 1,000? Analysts raise targets after Q3 earnings miss

NEW DELHI: Axis Bank’s decline in net profit for the December quarter might have disappointed investors, but a host of brokerages have upped their targets on the stock. Analysts found comfort in the bank’s reasonable cushion on identified stress assets, low restructuring and growth in retail loans. They see low cost of funding and improvement in the net interest margin (NIM) ahead.

CLSA has been among the most optimistic. It has a target of Rs 1,000 for the stock, as it noted that core pre-provision operating profit was hit by many one-offs and that the quarter saw low new stress formation.

Antique Stock Broking sees the target for the stock at Rs 750 compared with Rs 600 earlier, based on 1.8 times the FY23 expected book value, valuing subsidiaries at Rs 50 per share. A continued decline in cost of funds, improving growth in secured retail, low restructuring at 0.4 per cent of customer assets, and reasonable cushion of 48-55 per cent on the unrecognised but identified stress is driving improvement in outlook, it said.

Edelweiss has a new target of Rs 770 from Rs 600 earlier, as it believes that excess provisioning and capital raise will go a long way in increasing perceived equity sanctity. Kotak Securities said Axis Bank would be one of the few banks to come out early from any impact caused by Covid. It has a target of Rs 675 on the stock now, up from Rs 625 earlier. YES Securities sees the Axis Bank stock at Rs 775, as it believes that the scrip trades at an undemanding valuation of 1.4 times the FY23 price-to-book value ratio. The scrip, it said, trades at a 10 per cent discount to ICICI Bank, adjusted for the value of subsidiaries.

The above price targets suggest up to 58 per cent potential upside for the stock. The optimism among analysts was visible on the shares, which rose 1.27 per cent to hit a high of Rs 639.90 apiece on BSE on a day the BSE Sensex was down over 550 points.

The bank posted a 36 per cent drop YoY in net profit to Rs 1,116 crore, from Rs 1,757 crore in the corresponding quarter last year. Provisions in the quarter increased 33 per cent to Rs 4,604 crore, from Rs 3,470 crore in the year-ago period. Out of this, specific loan-loss provisions for the quarter were at Rs 1,053 crore.

“Demand in crucial sectors like housing, cement, steel, even automobiles, have turned out to be surprisingly strong and the rural markets have continued to perform very well,” said Amitabh Chaudhry, MD, Axis Bank. “We expect this momentum to continue into FY22 and the forthcoming Budget should look to build on these strengths. We are very well poised to support, grow and benefit from this recovery.”

During the quarter, the collection efficiency for the moratorium book improved further to 98 per cent and was better than the overall pre-Covid level. The restructured book stood merely 0.4 per cent of loans, way lower than anticipated, Edelweiss Securities said.

“We believe the bank’s high provisioning buffer and lower incremental stress will cushion and indeed seed the possibility of material write-backs,” said the brokerage, which expects the lender’s NIMs to improve in FY22 as an unwind of interest income reversal plays through.

The bank said that secured retail disbursements have crossed pre-Covid levels and the traction on that front will sustain.

“While the management has explicitly guided at elevated provisions in Q4FY21 for further strengthening the balance sheet, the credit cost should come down from FY22. This underpins our sharp RoA expansion thesis for the bank over FY21‐23. Margins too will be supportive of this with LDR expected to improve and excess balance sheet liquidity being redeployed as loans over the coming quarters,” YES Securities said.

LDR stands for loan-to-deposit ratio.

Analysts, however, acknowledged that Axis Bank’s performance has been volatile on the asset front despite significant liability gains. Overdue retail and SME accounts, and the performance of corporate assets, will therefore be keenly monitored, they said.

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