Axis Bank reported a weak set of first quarter earnings on July 22. The profit fell for the second consecutive quarter and for the first quarter of this fiscal it saw a 21.4 percent dip year-on-year (YoY) on account of sharp worsening in asset quality.
Analyzing the result, Rajiv Mehta of IIFL told CNBC-TV18 that the bank's weak fee income growth is disappointing and expects the bank to be under pressure post weak earnings.Read more: Axis Bank Q1 profit down 21% as provisions up 89%; NPA worsens
He further said that IIFL has adjusted the book value for Axis Bank by 4-5 percent and sees margins normalising at 3.6-3.7 percent.The manner in which Axis Bank's asset quality has unfolded in this quarter was on expected lines, he said, adding that he is not disappointed with the asset quality.
Giving an outlook on the company's book value he said that at current estimates Rs 225 and Rs 260 of book value can be expected for the next couple of years.
He said that the profitability is dented in FY17 and the drop in return on assets (RoA) from FY16 to FY17 is going to be much sharper and the RoA is going to fall to 1.3 percent but is expected to bounce back to 1.5 percent in FY18.
On an overall basis the stock is trading at 2.1 times FY18 book value which is fair and balanced and IIFL keeps an accumulate rating on it with a target price of Rs 583.Watch video for more...
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