Axis Bank Ltd. share price target

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...

Axis Bank's net interest income (NII) grew at a healthy pace of 15% YoY (in line with our expectation) mainly due to 11 bps YoY increase in net interest margin (NIM) to 3.5%. With better pricing power and lower interest income reversals, we expect NIM to improve further by 10-15 bps to 3.6% over FY18-FY20E. Other income grew by 4% YoY as the bank reported lower trading income (64% YoY). Fee income growth was modest at 9% YoY wherein retail fee grew at a strong pace of 23% YoY, but corporate fee declined by 37% YoY. Though provisions declined by 7% YoY, we expect it to remain elevated in H2FY19 as the bank continues to provide further for its stressed pool in FY19. Net profit jumped by 83% YoY mainly on the back of the low base of Q2FY18. Going...

Relative valuation premium amidst transition & higher non-corporate slippages: The quarter is marked by much lower slippages in the corporate segment; however we sense Retail/SME slippages continuing to remain high.

Axis Bank registered an 18% rise in Interest income to Rs 13280.99 crore in the quarter ended September 2018. A 20% rise in interest expenses to Rs 8048.88 crore saw net interest income (NII) rise 15% to Rs 5232.11 crore....

Axis Bank reported a stellar set of numbers Asset quality improved further in Q2FY19. Slippages came in at | 2777 crore (lowest in last several quarters) vs. | 4337 crore in Q1FY19. Corporate slippages were at | 1090 crore. Total 88% of this came from disclosed BB & below accounts. The bank's BB & below rated book was at | 8860 crore. This is 1.7% of the bank's gross customer assets vs. 7.3% peak reached in June 2016 Exposure to IL&FS; is relatively lower at | 825 crore. Of this | 238 is...

Significant improvement is seen on asset quality. Slippages have eased to 2.4% as against 3.9% last quarter. Similarly GNPA as well as provision coverage has improved sequentially. Loan growth is moderate at 11%, driven by retail and SME segment. NII growth of 15% is in line with our expectations; whereas PAT growth of 83% is 4% ahead of our estimates. We have cut our slippage estimate by 100bps to 3% for FY19. We have raised our ABV estimates by 3%/1% for FY19/FY20. Given the recent price correction, we upgrade our rating to ACCUMULATE marginally increasing our TP to Rs665 (Rs655...