Is Axis Bank The Dark Horse In Private Banks? Jefferies, Motilal, Other Brokerages Give Buy, 24% Upside Seen

Axis Bank is currently the fifth-largest Indian bank in terms of market share. It is the fourth major private sector bank, following giants like HDFC Bank, ICICI Bank and Kotak Mahindra Bank. But unlike its rivals, Axis Bank has given steady returns YTD, even surpassing their performance. And after the latest analyst meet, brokerages like Jefferies, Motilal Oswal, and others brokerages have recommended buying Axis Bank for a potential upside of at least 24% ahead.

Last week, Axis Bank shares ended at Rs 1008.15 apiece, up by 0.91% on BSE with a market cap of nearly Rs 3.11 lakh crore.

Year-to-date, Axis Bank's stock gains are over 7%, which is far better than Kotak Bank whose shares have tumbled 4.43% as of now. While HDFC Bank has taken a huge hit with a YTD decline of 6%. Axis Bank's performance also outruns ICICI Bank's share gains of 3% so far in 2023.

At the latest Axis Bank's analysts day, brokerage Jefferies in its research note dated November 24th highlighted that Axis Bank reiterated that initiatives to improve deposits are paying off with a ramp-up of wealth clients, Corp salary A/C and rise in share of lendable/ retail deposits. It sees limited impact from RBI's cautious stance on unsecured/ NBFC loans & sees no immediate need to raise capital. Asset quality is stable & ROE of 18% can be sustained.

Further, Jefferies note cited that Axis Bank's management reiterated the bank's pursuit of 'customer obsession' that is evident in the ramp-up of the wealth mgt platform (1 in 3 richest families bank with Axis), hyper-personalisation of digital & branch channels, partnerships with fintechs/ CSCs/tech-platforms among others. This is helping improve Net Promoter Score (NPS) and that's evident in business growth as well.

Also, Jefferies highlighted that Axis Bank reiterated its focus on retailisation of deposits highlighting that over Mar-22 and Sep-23, lendable deposits have grown at 34% and it pulled back from non-lendable (wholesale deposits) -to 17%. Its premium of interest rates on term deposits vs. large-bank peers has also been reduced. While slower deposit growth for the system is a challenge, Axis aims to grow deposits faster with branch expansion, ramp-up of wealth management clients & corporate salary A/C, and customised products for various types of depositors.

In Jefferies' views, Interestingly, 1 in 3 richest families bank with Axis Bank with the Burgundy platform. It added, "To us, improvement in deposit franchise & visibility of healthy deposit growth is key to loan growth. The bank also clarified that they see limited impact from RBI's recent actions on unsecured retail & NBFC loans. Integration with Citi's card platform is moving well."

Apart from this, Jefferies also said that the management t showcased that the bank is able to achieve PSL targets through its rural network and that has helped to reduce revenue leakage from RIDF deposits & PSLCs. The bank also sources 13% of retail deposits from this channel. Management reiterated that the partnership with Max Life is in a good place & the bank is looking to appoint a Chairman/ more directors on the board besides deepening sales engagement.

On valuation, Jefferies said, ". We see 16% CAGR in profits (normalised) over FY23-26 and ROE around +18%. Valuations are at a +20% discount to ICICI Bank (FY25) and can narrow. Axis stays among our top picks in the sector." The target price of Jefferies is set at Rs 1,250, which implies up to 24% ahead of current market price.

Meanwhile, Motilal Oswal in its note said, "AXSB remains focused on building a Stronger, Consistent, and Sustainable franchise. The bank will see a reduction in capital, due to the introduction of the new Risk Weight Assets regulations; however, the bank is already accreting capital and may catch up the lost capital through internal accruals. And thereby, it may not see a requirement to raise capital in the near term. The asset quality issues too are behind which will keep the slippages and credit cost under control. NIMs have shown improvement and the bank believes that it has sufficient levers to maintain healthy margins."

Also, MS' note added, "The bank eluded to continue making business investments due to favorable macro which will enable loan growth at 4-6% higher than the system over the medium term. We estimate AXSB to deliver FY25E RoA/RoE of 1.9%/16.6%. We reiterate our BUY rating with a TP of INR1,150 (1.7x FY25E ABV)."

Recommending buy as well, Elara Capital in its note said, "AXSB, in the past few years, has stitched a strategy to strengthen fundamentals. That said, the volatile performance, first led by softer aspects, and then by asset quality strain and lower PPoP, took the sheen off of fundamental changes. Progress in underlying business performance reinforces our belief of improved delivery, but consistency is the key. We maintain BUY with TP unchanged at INR 1,246."

Lastly, Kotak Institutional Equities said, " We see large private banks, including Axis Bank, delivering a similar return, growth and credit cost profile. The bank has presented a strong investment thesis to converge its multiple to its peers, but this would need greater comfort, which, in our view, is still in the rebuilding phase." The brokerage recommended buy for a target price of Rs 1,100.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.