Axis Bank Ltd. share price target

Our constructive stance on AXSB draws from the leadership change, (resultant) better underwriting, a healthy B/S (CRAR at 18.5% and PCR at 61% + contingent provisions at ~9% of GNPAs) and the worst of asset quality long behind the bank. We see a steady upward climb in delivered RoAAs, driven by falling credit costs as well as oplev under capable leadership. Our conservative growth (17% CAGR) and LLP (160bps) assumptions hold significant upside risk. Maintain BUY. Our SOTP of Rs 958 assigns 2.75x Sept-21E ABV of Rs 339 + subs value of Rs27. AXSBs 2Q surprised as overall stress dipped, asset quality improved (despite higher slippages) and NIMs improved sequentially. While operating performance was in-line, the DTA mark-down of Rs 21.4bn resulted in a net Loss. Maintain BUY with a TP of Rs 958 (2.75 x Sept-21E ABV of Rs 339 + Rs 27 for subs).

Improving Operating Metrics; Execution Remains Key for Rerating Axis Bank's 2QFY20 operating metrics were largely in line with our estimates, with NII and PPoP growth of 16% and 45% respectively. The miss in PAT estimates was mainly driven by higher provisions and the one-off impact of DTA markdown of Rs21.4bn during the quarter, excluding which PAT grew by 157% YoY to Rs20.2bn (low base). Despite elevated slippages at 4% of advances, GNPA ratio declined by 22 bps QoQ aided by higher write-offs. Domestic loan book grew by a healthy 19% YoY, while de-growth in overseas book dragged the overall loan growth to 14% YoY. Growth in fee income stood at a modest 12% YoY owing to a weaker growth...

Axis Bank posted a loss of Rs.1.12bn due to a one-time impact of deferred tax asset (DTA) in the P&L; on account of corporate tax rate cut. Adjusted for DTA; PAT would have grown by 157% YoY to Rs.20.26bn. NII grew by 17% YoY led by improvement in NIMs at 3.51% (highest in last 9 quarters). PPoP has grown significantly, driven by 45% YoY growth in noninterest income. Gross slippages came in as a key negative, given the quantum was a 5-Qtr high figure at Rs49.8bn; however decline in BB & Below book was positive. With most of the asset quality issues behind and senior management in place, we remain confident of the structural growth story of the bank. Hence, we retain our BUY rating on the stock and revise...

Domestic credit growth continue to remain strong at 19% YoY while overseas book de-grew 25% YoY leading to overall advances growth of 14.4% YoY. Domestic growth was fuelled by retail (23% YoY) led by unsecured, auto & small business banking. However, SME growth was muted. In contrast, deposit growth remained healthy at 22% YoY led by term deposit growth (37% YoY) while CASA growth remained muted at 7% YoY. Accordingly, CASA ratio remained stable at 41.1%, down 20 bps QoQ. Operating profit was at ~| 5952 crore, up 45% YoY led by improving credit...

Axis Bank reported a robust growth in net interest income (NII) and net revenue on account of a) 13bps YoY expansion in net interest margin (NIM) to 3.5%.

We have only slightly tweaked our loan growth (+100bps) and adjusted for the recent change in tax rates. Our TP increases by ~9%, largely due to the impact of the fund raise. SUUTI's intended stake sale (5.4%) is a near term overhang. Our estimates are very sensitive to asset quality outcomes. Higher than expected asset quality deterioration is the biggest risk to our stance. Corporate heavy banks in our coverage (SBIN, ICICIBC and AXSB) have seen steady earnings normalisation over FY19. Of these banks, AXSB has been our top pick as we sensed DNA change at the bank (in addition to the then anticipated asset quality improvement and RoAE expansion). We evaluate the implications of the recent fund raise on our positive stance on AXSB.

We continue to view Axis Bank as a potential candidate for re-rating, with headroom to catch up with other peers in the private banking space in terms of valuation, buoyed by its improving fundamentals. We believe that factors like incremental addition to better rated clients (in the corporate segment) and its own client driven retail strategy, augur well. While the recent corporate stressed pool and slowing economy pose near term risks, we believe that some long term positives offer comfort. Hence asset sale deals by borrowers, risk weights reduction by RBI for...

The bank's deposit base also increased 20.9% YoY, with retail term deposit growth of 42.7% YoY and CASA growth of 10.3% YoY. Net interest margin (NIM) increased 11bps YoY to 3.4%, and net interest income rose 13.1% YoY....

Axis Bank is the thirdlargest private sector bank in India in terms of asset size. The Bank has a large footprint of ~4000 domestic branches (including extension counters) spread across the country.

Axis Bank's NII growth of 13% was in line with our estimate, while PPOP growth came in at 35% YoY (+17% above our expectations). Core fee growth led by retail and transaction fee was strong at 26% YoY. However, headline NIM declined 6 bps YoY to 3.40%. Gross slippages also came in as a key negative, given the quantum was a 5-Qtr high figure at Rs48bn. Moderate loan growth of 13% was due to de-growth in the overseas book. We believe the systemic headwinds would continue in the near term, post which we remain confident of the structural growth story of the bank. Hence, we retain our BUY rating on the stock and revise TP to Rs780 (Rs860 earlier) by valuing the...