Angel Broking bullish on Axis Bank; sets target of Rs 1580

Country's third largest bank, Axis Bank reported a better-than-expected Q3 net profit of 22 percent year-on-year (y-o-y) to Rs 1347 crore due to decline in provisions against bad loans, higher net interest income and robust fee income. In an interview to CNBC-TV18, Vaibhav Agrawal of Angel Broking said that the Axis Bank result is in line with their expectation and is bullish on this high beta stock.

"Given that the environment is improving, it is a good high beta stock to play and so we remain positive on the stock. We have a target of around Rs 1580 on the stock," adds Agrawal. Below is an edited transcript of Vaibhav Agrawal's interview on CNBC-TV18 Q: If you looked up the profit & loss of Axis Bank what are your comments?
A: We were above consensus on the bottom-line for Axis Bank and they have largely delivered in line with our expectations. They had levers in this quarter in terms of the Net interest margin (NIMs) as well with the lower cost of funds and also on the treasury and equity bond gains side. That was one thing and the provisioning last quarter had made a Rs 115 crore contingency provision which was not required this quarter.

There was scope to have lower provisioning as well. So broadly in line with our expectations, better than the street and even on asset quality the fact that they have maintained the gross and net NPA ratio and that’s a good set of numbers. Q: It is a good Rs 75 crore higher than what street was expecting. What do you think has led to the beat, was the street factoring in slightly lower NIMs?
A: That could be one of the things. Even on the other income there might have been some better numbers that they have given on the bond and equity gains. Other than that, the provision is largely in line, may be a little Rs 20-30 crore lower. So it is a mix of two-three items. Q: You said something about the lower provisioning, did they provid extra last quarter?
A: Yes, they had about Rs 115 crore of contingency provision to provide for future anticipated NPAs and did not have the need to do it in this quarter. So that would have also helped a sequential decline in provisioning. Apart from that on the net slippage front, they would have largely met their guidance of around Rs 400 crore odd. Broadly, asset quality has been in line with their guidance and that is why they have managed with lower provisions, hence the beat on the profits as well. Q: What may be their restructuring and slippages number for the current quarter considering that provisions have not gone up and now for restructured assets the provisioning is stiffer at 4 percent? Will we be confronted with any big restructuring number? Is that a safe guess?
A: On restructuring the provision amount would not have been material so that necessarily may not indicate. But restructuring broadly, if it is an increase of Rs 700-800 crore in this quarter that is largely what the market has already built in and is in line with the management guidance of around Rs 600-700 crore. So if it's up to that, it will not be taken negatively. It looks more or less in line with that. Q: What's your call on the stock itself?
A: Given that the environment is improving, it is a good high beta stock to play and so we remain positive on the stock. We have a target of around Rs 1580 on the stock.