Buy This Banking Stock For A 50% Upside Potential

Axis Bank: Good potential in the stock

Axis Bank is the third largest private sector bank in India. The Bank offers the entire spectrum of financial services to customer segments covering Large and Mid-Corporates, MSME, Agriculture and Retail Businesses. The Bank has about 4,594 domestic branches, apart from solid international network of branches.

According to Motilal Oswal Financial Services, Axis Bank delivered a weak operating performance in 2QFY22 that was characterized by margin weakness (7bp QoQ decline) and a muted trend in Core PPoP.

"However, lower provisions (Rs 17.3 billion) aided earnings which surpassed our estimate by 13%. Business growth was tepid and was pulled down by a 5% QoQ decline in corporate advances, while a strong sequential recovery was witnessed in SME/Retail loans," the brokerage said.

Buy for a 50% upside potential on the stock

Motilal Oswal Financial Services expects the stock of Axis Bank to touch levels of Rs 975, which from a price of Rs 663, is slightly under the 50% appreciation.

The bank saw a loan book growth of 10% YoY (up 1.1 per cent QoQ) with retail loans up 16% YoY (4% QoQ). "Retail loan disbursements were up 54 per cent QoQ. Strong trends were witnessed in the SME portfolio as well which grew 18% YoY (7% QoQ), while corporate growth remained weak (down 5% QoQ). On the liability front, deposits grew 3% QoQ, led by a 6% QoQ growth in CASA deposits. As a result, the CASA ratio improved by 100 basis points QoQ to 44% (quarterly average CASA stood at 42%)," Motilal Oswal has said.

The broking firm has cut its earnings estimates for FY22/FY23E by 6%/4% to factor in the higher operating expenses and lower NII, and remain watchful of a recovery in the bank's operating earnings. "We estimate Axis Bank to deliver RoA/RoE of 1.5%/14.6% in FY23. Maintain Buy with revised target price of Rs 975," Motilal Oswal has said.

Investors should be cautious

We have been telling our readers to remain cautious on large scale investment, after the worries over the new omicron variant. Our own belief is that the markets are overvalued at this juncture and declines from these levels is also highly possible. Investors should therefore exercise some caution before investing.

"We expect the Centre/ state governments to remain proactive, given their experience from the second COVID wave in Apr-May'21, and guidelines to evolve as the trajectory of the new variant becomes clearer. We expect the market to witness elevated volatility in the near term. However, valuations after the pullback, are relatively reasonable now at 23.3x/19.5x FY22E/FY23E Nifty EPS. Hence we would advise investors to buy into this correction," says Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.

We suggest investors to only nimble into stocks and that too on declines. Large scale allocation of money at this stage could be a little risky.