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This Banking Stock Can Rally 30% From The Current Levels, Remains Undervalued Stock

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The shares of Axis Bank is probably the cheapest among largecap peers in terms of valuations. Recently, Sharekhan has recommended a buy call on the stock with a solid upside target of almost Rs 910 on the stock.

 

Management sees growth in advances ahead

Management sees growth in advances ahead

Current market priceRs 712
Target priceRs 940
Like % profits32.00%

According to Sharekhan, 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.

"Net declined by 21 bps y-o-y and 7 bps q-o-q to 3.5% in Q2FY2022. Management expects net interest margin 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 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," the brokerage has said.

Reasonable valuations
 

Reasonable valuations

According to Sharekhan, 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 cost 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 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 of Rs. 940," the brokerage has said.

Focus on digital

Focus on digital

According to Sharekhan, 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.

The shares of Axis Bank were last seen trading at Rs 710 on the NSE.

Disclaimer

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.

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