Stock To Buy: Largecap Banking Stock Poised For A Giant Leap In The Coming Quarters

Motilal Oswal has recommended buying the stock of Axis Bank, post the bank's stupendous results. The institution feels that the performance was exemplary and the margins have take a giant leap. Motilal Oswal has now recommended buying the stock for a target price of Rs 975.

Axis Bank: Decent corporate numbers

The reported a net profit of Rs 53.3 billion, up 70% YoY (26% beat), largely driven by 6% beat in Net Interest Income and lower provisions, which declined 51% YoY.

The business registered robust growth of 18% YoY and 4.2% QoQ growth in advances. The SME segment grew 28% YoY/8.7% QoQ. The large and midcorporate segment also came back with a 6% QoQ growth, after witnessing a decline in 1QFY23. Fresh slippages moderated to Rs 33.8 billion, which coupled with healthy recoveries and upgrades enabled an improvement in asset quality ratios. Restructured book remains controlled at 0.38% of customer assets.

Buy the stock with a price target of Rs 975

According to Motilal Oswal, the bank delivered stellar performance in 2QFY23, driven by sharp margin expansion and a significant decline in provisions along with improving trends in cost metrics. "Business growth recovered in the current quarter after a quarter on quarter decline witnessed in 1QFY23. Asset quality continues to improve, aided by moderation in slippages and healthy recoveries, and upgrades. Restructured book moderated further while higher provisioning buffer provides comfort. Buoyed by an exemplary performance in 2QFY23, we revise net profits for FY23E/24E by 17%/11%, respectively. We estimate Axis Bank to deliver FY24E returns on assets/return on equity of 1.8%/18.1%. We reiterate our Buy rating with a target price of Rs 975 (2.0x FY24E anticipated book value)," the brokerage has said.

Management commentary positive

According to the management, core operating performance was robust along with margin improving 36bp QoQ to 3.96% in 2QFY23. Opex growth moderated YoY and was flat sequentially as investments made in the past have started yielding results. "The bank is committed to attain Cost to assets of 2% in the medium term. Due to Citi acquisition, 177 basis points of capital is expected to be utilized. Backed by strong profitability, it does not see a need to raise capital. However, it will continue to evaluate the same till the acquisition is completed," Motilal Oswal has said in its report. The shares of Axis Bank were last seen trading at Rs 904 on the National Stock Exchange.