This Banking Stock Can Give Returns Around 32% Says Sharekhan

Q2FY2022 results of Axis Bank

In its research report, the brokerage has said that "Axis Bank's loan book growth has been in high double digits over FY2016 to FY2018, which seems to have tapered down in recent years. However, we expect the bank's loan book to post a 13% CAGR over FY2022E-FY2024E. For Q2FY2022, advances grew by 10% y-o-y and 1.1% q-o-q to Rs. 6.2 trillion, led by retail loans, which accounted for 56% of net advances (up 16% y-o-y), SME portfolio (up 18% y-o-y), and mid-corporate (up 32% y-o-y). Management foresees credit growth to be in double digits in 18-24 months, led by retail and SME businesses. Asset quality for the bank seems to have stabilised, but slippages have been still on the higher side. For 2QFY2022, GNPAs declined by 32 bps to 3.53%. The bank is optimistic about the asset quality and expects it to improve further going ahead. Net interest margin (NIM) declined by 21 bps y-o-y and 7 bps q-o-q to 3.5% in Q2FY2022. Management expects NIM to improve going forward on account of change in loan book mix due to higher contribution by retail loans. We expect its credit cost to normalise and deliver RoA of 1.5% in FY2023E."

Sharekhan has claimed that "Although advances for the bank have been soft in Q2FY2022 (advances grew by 10% y-o-y and 1.1% q-o-q), management is optimistic about credit growth going ahead, aided by the retail portfolio. NIM declined by 21 bps y-o-y and 7 bps q-o-q to 3.5% in Q2FY2022. Management expects NIM to improve going forward on account of change in loan book mix due to higher contribution by retail loans and lower cost of funds as the bank continues to build on granular deposits. Deposits grew by ~16% y-o-y and retail deposits (CASA + retail TD) accounted for 83% of total deposits. Axis Bank has been continuously focusing on reducing corporate portfolio and de-risking it. In the retail segment, the share of secured loans was at 80% with a high proportion of customers as Existing to Bank (ETB) customers. While in corporate banking, the bank is opting for granularity with better-rated corporate and shorter tenure exposures."

According to the brokerage's research report "Asset quality for the bank seems to have stabilized, but slippages have been still on the higher side. For 2QFY2022, GNPAs declined by 32 bps to 3.53%. The bank is optimistic about the asset quality and expects to improve further going ahead. Slippages stood at Rs. 5,464 crore (3.4% of loans), which was largely from the retail portfolio. Overall, restructuring book increased by 31 bps q-o-q and stood at 0.64% of the book with provisioning at 24%. PCR stands at 70% in Q2FY2022 and management expects slippages to be lower in H2FY2022. BB and below book declined by ~24 bps q-o-q to 1.9% of loans. For 2QFY2022, cheque bounces remain marginally elevated as compared to pre-COVID levels; and with concerted collection efforts and investments in collections, efficiency stood at 98.8% in September 2021 for the retail portfolio."

The brokerage claims that "Axis Bank continues to invest in digital and technology capabilities and platforms are used to garner retail, SME, and transaction banking businesses. The bank is optimistic to drive growth through these investments. The bank has 15% market share in UPI payments and 67% of fixed deposits and 55% of personal loans are through digital platforms."

Buy Axis Bank With A Target Price of Rs. 940 Says Sharekhan

As per the brokerage's point of view, "Axis Bank trades at 1.9x/1.7x/1.5x its FY2022E/FY2023E and FY2024E book value. We believe its valuations are reasonable and there is potential for re-rating for the company, as we expect strong growth. We believe as the economic scenario normalises, the bank has the potential to recover sharply, led by lower credit costs and improvement in margins. The bank's asset quality continues to remain stable with lower BB and below book (~1.9% of the book) and higher recoveries going ahead. We expect the bank's loan book to post a CAGR of 13% over FY2022E-FY2024E. It is well capitalised with CAR at 19.23% as of September 2021. Management expects NIM to improve going forward on account of change in loan book mix due to higher contribution by retail loans. We expect its credit cost to normalise and deliver RoA of 1.5% in FY2023E. We reiterate Buy on the stock with an unchanged price target (PT) of Rs. 940."

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.