Axis Bank Ltd. share price target

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...

book. Retail loans continued to deliver strong growth on the back of growth in unsecured lending. During the quarter retail loan growth was 22% YoY. Share of retail loans to total loans increased from 48% to 52% YoY. Corporate loan growth was muted at 3% YoY. was moderated during the quarter to 41% from 47% YoY. Asset quality of the bank remained stable with GNPA at 5.3% and NNPA at 2% QoQ. However, Fresh slippages were higher at Rs 4798 cr vs. Rs 3012 cr QoQ. Increase in slippages was on acoount of corporate slippages...

With the worst long behind AXSB (in terms of asset quality), the near term forewarning is not too disconcerting. As our earnings have consistently, and conservatively lagged consensus, they dip merely 3/4% for FY20/21E to factor in higher provisions. Numerous strategic changes, give us confidence on the bank's ability to face macro headwinds and thus stay put on its long term trajectory. In line operating performance and higher provisions resulted in a PAT miss. In spite of higher slippage guidance, our already conservative earnings havent suffered much. MAINTAIN BUY with a TP of Rs 900 (2.8x Jun-21E ABV of Rs 311 + Rs 27 for subs)

Slippages came in higher at | 4798 crore vs. | 3012 crore in Q4FY19 led by corporate slippages of | 2128 crore though write-off of | 3005 crore aid in maintaining absolute GNPA numbers. Exposure to recently cropped 8 stressed corporates stood at ~| 12200 crore out of which | 2200 is classified as NPA and | 2900 crore is in BB & below book, leaving ~| 7000 crore of assets as standard and unprovided. Overall BB and below book continues to remain steady at | 7504 crore, flat QoQ (| 7467 crore in Q4FY19). Operating profit was at ~| 5893 crore, up 35% YoY largely led by strong...

revenue. This resulted in a further improvement in Cost to Assets ratio to 2.08% from 2.13% in Q4FY19. The operating profit grew 35% to Rs 5893 crore. The bank has further improved Provision Coverage Ratio to 78% from 77% end March 2019. Asset quality continues to improve The bank has continued to reduce GNPA and NNPA for the 5th straight quarter to 5.25% and 2.04%, as compared to 5.26% and 2.06% end of March 2019....

Axis Bank reported Strong core operating performance; however asset quality pain continues.