Buy Axis Bank; target of Rs 1540: Dolat Capital

“Axis Bank’s management change in strategy on retail credit book expansion led to improvement in margin and fee income. The bank’s management plans to further expand its retail credit book’s composition to 28%-29% in two years time horizon from the present level of 26%. In Q2 FY13, credit book expansion pace was lesser than expected; emphasis on retail credit made the difference. Although, other segments like agricultural, SME and Large & Mid-corporate recorded dismal expansion.”

“In Q2 FY13, Axis Bank’s NII grew by 16% YoY to Rs 23.3bn in-line with our estimates; margin expanded by 9bps QoQ to 3.46% due to increased retail credit disbursements and reduction in cost of funds. Traction in fee income due to 43% jump in retail fee income and sharp jump in capital gains on the back of equity gains of Rs 950mn led to deviation at operating and net profit levels. The bank reported bottom-line growth of 22% YoY to Rs 11.2bn against our expectation of Rs 10.1bn.” 

“The bank’s core interest income was in-line. Higher fee income and jump in capital gains led to deviation at operating and net profit levels. We marginally reduce our business volume growth projection and resultantly marginal reduction in earnings estimates (by 2.0% in FY13 and 2.5% in FY14) and target price to Rs 1,540 (from previous TP of Rs 1,582) at 2.1x ABV FY14. At current market price, the stock quotes at 1.55x ABV FY14. We reiterate our buy rating on the stock,” says Dolat Capital research report.

FIIs holding more than 30% in Indian cos

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