Emkay Global Financial has given Buy recommendation for AXIS Bank with a target price of Rs. 1020 in its research report issued on Oct 27, 2021

Emkay Global Financial’s report on AXIS Bank

Despite slower growth, lower NIMs and higher opex weighing on PPoP (down 11% yoy), Axis reported a PAT beat at Rs31.3bn (est: Rs27.5bn) mainly due to contained provisions. Growth disappointed again, but asset quality trends were better vs. peers. GNPA ratio was down 32bps qoq at 3.5%, while restructured pool stood at 0.64% (+31bps qoq) of loans. Credit growth remains an irritant (+10% yoy), lagging peers like ICICI (17%)/HDFCB/KMB (15%). However, Axis expects to improve the growth trajectory with the help of retail/SME businesses and a gradual pickup in large corporates. NIM too remains an irritant, but Axis pins hope on better growth/change in the product mix and declining PSL drag. We believe the bank has undergone a major transformational journey in the past few years, fortifying the balance sheet, building strong capital/provision buffers and revving up the digital banking platform and even the subsidiaries.

Outlook

However, it will have to deliver on growth/core-profitability to re-rate from hereon. Factoring in slower-than-expected growth/NIMs, we trim our earnings estimates for FY22-24 by 1-3%. However, we still expect the bank’s RoA/RoE to improve from a low of 0.7%/7% to 1.7% %/17% in FY24E. Retain Buy with a revised TP of Rs1020 (Rs960 earlier), valuing the core bank at 2x Dec’23E ABV and subs/investment at Rs75.

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