Axis Bank Ltd. share price target

Axis Bank's top management provided deep insights into the bank's strategy to achieve aspired RoE of 18% in the medium term (FY22E). New Changed from | 790 to | 825 MD & CEO, Amitabh Chaudhary, showcased their Growth- ProfitabilityUnchanged at | 37.5...

Axis Bank hosted an analyst day to showcase the path ahead to the goal of Change in Estimates | Target | Reco articulating detailed strategy. Some of the key points were (i) scaling up of...

Corporate loan growth will be a function of Risk Adjusted Return and if the return criteria are met, then AXSB does not plan to impose any upper limit on growth. Incrementally, the bank is looking to grow both its retail and wholesale side of the balance sheet, and has guided for calibrated increase in retail asset mix. AXSB plans to make Product, Underwriting and Operations a separate function in both Wholesale and Retail business from 1 Apr19. Axis Bank wishes to enter into manufacturing of the life insurance business; however, it is awaiting clarity from the RBI on the structuring of a life insurance company. However, AXSB will exercise caution in growing the international/guarantee business, which will cap the recovery in fee intensity to historical levels. The mix of fees has changed in favor of retail, where in the card business contributes 24% to the total fees v/s 9% in FY14, while corporate fees have declined from 32% to 17%.

We attended Axis Bank's Analyst Day, in which Mr. Amitabh Chaudhary, the new MD and CEO, reiterated his stance on undertaking a major overhaul of business verticals, focusing on three pillars (Growth/Scalability, Profitability, and Sustainability), and achieving 18% RoE in the medium term (we believe by FY22) on a sustainable basis. The current corporate stress pool of 2.8% of loans may have some inter-quarter volatility, but largely factors in corporate stress, and there are no worrying signs of stress in the retail...

PNGRB recently concluded the 10th round of CGD bidding that offered 50 geographical areas (GA), taking the cumulative count to 130 GAs awarded across India within a year. Given the strategic nature of ~20 GAs won by GAIL Gas, IGL and GUJGA that complement their infrastructure presence, these players could see significant volume ramp-up over 2-3 years....

We believe that the de-risked loan portfolio, a competent and young CEO (one of the youngest amongst large banks) with a very credible track record at HDFC Life, along with reversal in provisioning cycle will drive sharp expansion in valuation multiples for AXSB over the next few years. A decade ago, Corporate/SME segments accounted for ~70% of total loans. Currently, the share of these two segments has steadily declined to ~50%, as the bank is focused on retail assets and has added significant granularity to its loan book. The growth in retail assets was driven by smaller ticket sized loans such as vehicle loans, personal loans and credit cards, even as AXSB consciously slowed growing its housing portfolio owing to lower profitability in the segment. AXSB has been focusing on the cross-selling strategy with ~96%/93% of credit cards/personal loans being extended to existing customers.

Retail slippages remains a pain point; unfavorable risk reward: We note that we had a cautious outlook on the stock as we had built in risk of consolidation on growth post the transition given that we assess non-corporate slippages (retail/SME) to be elevated.

Axis Bank reported a stellar set of numbers Asset quality improved with slippages at | 3746 crore vs. | 2777 in Q2FY19 & | 4428 crore in Q2FY19. Corporate slippages were at | 1,887 crore, of which ~98% came from BB & below account. The bank's BB & below rated book is continuously declining to | 7645 crore; 1.4% of gross customer assets vs. 7.3% peak in June 2016 Exposure to IL&FS; stays lower at | 825 crore (| 238 fund based). Divergence from RBI AQR for March 2018 was | 225 crore pertaining...

Maintain BUY with a revised TP of Rs 743 (2.5x Dec-20E ABV of Rs 297). Axis remains our top pick among larger banks. AXSBs 3Q vindicates our belief in its sustainable recovery, driven by a transformational leader. The evidence is broadbased: (1) Uptick in domestic loan growth: 18% vs. 15% in 2Q, (2) NIM expansion 11bps QoQ, (3) Fee growth of 10% QoQ led by retail, (4) Stable asset quality, with slippages mostly confined to the rapidly falling BB and below portfolio, and (5) Rising coverage, now at 75%.

Stressed assets (BB & below + SR + restructuring) book has declined by another 30bps during the quarter to 2.4% of loan book. Slippages are tad higher at 3.2% as against 2.4% last quarter, attributable to higher slippage in watch list. Loan growth moderates at 13%, driven by retail and SME segment. NII growth of 18% is 5% ahead of our estimates. On the back of recovery from written off accounts of Rs10bn, PAT is 35% ahead of our estimate. We have retained our ACCUMULATE rating marginally...