Axis Bank, an FPI favourite and a consensus buy, reported a second straight quarter of solid core performance, leading to a few upgrades in its target prices. Analysts noted Axis' return on equity (RoE) and return on assets (RoA) were at multi-year highs and that growth in pre-provision operating profit (PPoP) was highest in the sector. The management has reiterated guidance of growing loans 5-6 per cent above the sector average in FY24. The lender, analysts said, is focusing on attaining self-sufficiency in capital.
"With two strong quarters of core performance and healthy RoA progression, we believe earnings volatility is a thing of the past," said Nuvama Institutional Equities. Citi portfolio is doing well, said this brokerage said while increasing its target on the stock to Rs 1,150 from Rs 1,000.
Axis Bank clocked a 62 per cent year-on-year (YoY) surge in net profit at Rs 5,853 crore for the December quarter compared with Rs 3.614 crore in the same quarter last year. Net interest income (NII) for the quarter jumped 32 per cent YoY to Rs 11,459 crore, the bank said in a BSE filing. Net interest margin (NIM) for the quarter stood at 4.26 per cent, up 73 basis points (bps) YoY and 30 bps sequentially.
ROE for the December quarter stood at 19.4 per cent and RoA at 1.9 per cent against average RoA of 1.3 per cent over the last eight quarters. Nuvama said the current high trajectory of profitability is sustainable and ends three years of volatile earnings. Emkay Global upped its target on the stock to Rs target to Rs 1,300 from Rs 1,110 earlier.
"Axis Bank continued to report strong core profitability (up 53 per cent YoY), supported by robust margin expansion (up 70 bps YoY) and healthy core fees. This, coupled with reversal of MTM losses, led to a 9 per cent beat on PAT (up 62 per cent YoY). Overall LLP was higher than expected, as the bank made prudent provision on a specific account, showing early signs of weakness," Emkay said.
Motilal Oswal said Axis bank delivered a stable performance, driven by margin expansion, high other income and improving cost metrics. Business growth was healthy, it said, led by the corporate segment.
"Asset quality continued to improve, even as slippages increased marginally, compensated by healthy recoveries and upgrades. The restructured book moderated further, while a higher provisioning buffer provided comfort. We tweak our estimates slightly and expect Axis Bank to deliver RoA/RoE of 1.9 per cent/17.3 per cent in FY25," it said. This brokerage has a target of Rs 1,130 on the stock.
Nirmal Bang Institutional Equities said asset quality for the bank improvement, but gross delinquencies and credit cost were impacted by non-recurring/one-time prudent item. Despite all the stress indicators showing a sequential improvement, the bank sustained cumulative provisions coverage at 139 per cent, it noted.
"We have raised our earnings estimates and expect the bank to report RoA of 1.8 per cent and ROE of 16.6 per cent by FY25E. Valuation comfort underpins our BUY stance on Axis Bank. We maintain BUY with a target price of Rs 1,132," it said.
Sharekhan said there are no asset quality concerns for the bank at least in the near to medium term. The bank has additional contingency buffers of 150 bps of advances over and above the PCR, it said.
"As far as sustainability of NIM is concerned, we believe the balance sheet mix is improving both on the assets as well as liability side, which should partly offset the increase in cost of funds. However, pick-up in retail deposits mobilisation remains the key monitorable going forward. We also expect operating leverage to start to kick in and lend support to PPoP growth in the medium term. Near-term focus would be on Citi’s portfolio integration," it said while suggesting a target of Rs 1,140.
The stock has 30 'strong buy' calls, four 'buy' calls, two 'hold' calls and no 'sell' recommendation, as per data publicly available with Trendlyne. Data showed FPIs held 46.71 per cent stake in this bank as of December 31, 2022.
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