Brokerage firm Motilal Oswal Financial Services has a ‘buy’ call on Axis Bank stock with a target price of ₹1,130, implying a 21 percent upside.
"We estimate Axis Bank to deliver FY25 RoA (return on assets) and RoE (return on equity) of 1.8 percent and 16.9 percent, respectively. Axis Bank is our top pick for the calendar year 2023 (CY23) with a target price of ₹1,130 (2 times Sep’24E ABV + ₹94 for subs)," said the brokerage firm.
Shares of Axis Bank have risen more than 38 percent in the last one year against an over 5 percent gain in equity benchmark Sensex.
Motilal Oswal highlighted that after reporting modest growth till the first half of the financial year 2022 (1HFY22), Axis Bank has been witnessing a healthy recovery as loan growth has improved to 14-18 percent in the past four quarters versus a 13 percent CAGR over FY19-22.
The loan growth was driven by the retail book, which saw an 18 percent CAGR over FY19-22. SBB (small business banking) and rural loans registered a robust CAGR of 49 percent and 23 percent, respectively, the brokerage firm pointed out.
"Axis Bank is focused on improving the product mix, and consequently, the mix of high-yielding retail loans (including personal loans, credit cards, SBB and rural loans) stands at 22.6 percent in 2QFY23. The rural and semi-urban market remains key focus area, which we believe should enable sustainable loan growth over the medium term. We, thus, estimate a 17 percent CAGR in loans over FY22-25," said Motilal Oswal.
Axis Bank has been continuously investing in the business and building digital capabilities to support growth. As a result, nearly 51 percent of incremental opex over the past one year has been made towards investment in technology and business, said Motilal Oswal.
The bank added nearly 7,500 employees and 164 branches in FY22. The retail loan mix has increased to 58 percent, which, coupled with the expansion in the credit cards business, has resulted in elevated opex (cost-to-assets at nearly 2.2 percent in FY22), Motilal Oswal said.
While the bank will continue to make investments, it expects revenues to grow faster than opex, which, coupled with improving efficiency, should reduce opex ratios gradually. Thus, the bank expects to bring down the cost-to-assets ratio to nearly 2 percent by FY25-end, said the brokerage firm.
The bank's asset quality has improved significantly over the past few years, with slippages moderating to 3 percent in FY22 (2.1 percent in 1HFY23), which led to a decline in the GNPA ratio to 2.5 percent in 1HFY23 versus 5.1 percent in FY20. The net slippage ratio was also low at 0.8 percent and 0.4 percent in FY22 and 1HFY23, respectively, Motilal Oswal observed.
"Axis Bank remains focused on its articulated strategy of growth, profitability, and, sustainability with an aim to deliver a consolidated RoE of 18 percent on a sustainable basis. We believe that the bank has progressed well over the past few years and has strengthened its balance sheet by making it granular, increasing the mix of retail loans and improving its PCR," said Motilal Oswal.
Axis Bank remains focused on building a stronger, consistent, and sustainable franchise. Since asset quality issues are now behind, slippages and credit costs should be under control. NIMs have improved significantly and the bank believes that it has sufficient levers in place to offset the rise in deposit costs, added the brokerage.
According to a MintGenie poll, 40 analysts on average have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of broking firms. These do not represent the views of MintGenie.