The shares of Axis Bank have logged strong gains in the last year, outperforming the benchmark index Sensex by a significant margin and yet analysts and brokerages believe it has more legs to go in the medium term.
Axis Bank has logged a gain of 72 percent on BSE in the last year against a 51 percent gain in the Sensex. In 2021 so far, the stock is up 19 percent, while the Sensex is up 10 percent.
Brokerages believe the stock will rise further as the fundamentals of the stock are intact and the impact of the second wave of COVID-19 will be lower than the first wave due to the absence of a moratorium.
Global financial firm Morgan Stanley is overweight on the stock with a target price of Rs 1,000, a 35 percent upside from the current market level of Rs 739.65.
"There will be near-term impact owing to the second COVID wave. However, the bank expects to re-accelerate growth across segments as the COVID-related concerns subside," Morgan Stanley said.
Despite near-term COVID-led disruption, the bank claims to be ready for accelerated growth with a clear focus on RARoC (risk-adjusted return on capital)-based lending, mainly driven by retail/SME, brokerage firm
Emkay Global said.
Emkay has a buy call on the stock with a target price of Rs 960, which is a 30 percent upside from the stock's current market price.
"The bank claims that lower ECLGS (emergency credit line guarantee scheme) disbursement among peers corroborates better-quality SME back-book and plans to re-accelerate growth (partly gaining market share from PSBs). On the corporate front, the focus will be on building granular working capital and mid-corporate book. We build in 15-22 percent growth for FY22-24E," Emkay said.
"The bank has undergone a major transformational journey, fortified balance-sheet and is now ready to re-accelerate growth, delivering better return ratios (RoA/RoE at 1.5-1.6 percent/15-16 percent in FY23-24E)," said Emkay.
The bank posted a net profit of Rs 2,677 crore for the quarter ended March 2021 following a sharp decline in bad loan provisions. The double-digit growth in net interest income, non-interest income and pre-provision operating profit boosted profitability.
Jyoti Roy, DVP Equity Strategist, Angel Broking, said while there is going to be some impact of the second COVID wave on the asset quality in the first quarter of FY22, Axis Bank holds additional provisioning of 1.9 percent of advances which provides comfort.
"At the current level, Axis Bank is trading at P/ABV of 2.1 times FY22 adjusted book of Rs 357. Given the improvement in asset quality and excess provisioning on the books, we remain positive on Axis Bank, and it is one of our top picks in the large-cap banking space," Roy said.
While brokerages and analysts are positive on the stock, the road ahead is not free of bumps. While COVID remains a looming risk that could trigger a rise in NPA, the bank's asset performance, too, has been volatile.
"Despite considerable liability increases, Axis' asset performance has been volatile. Overdue retail/SME accounts and the implementation of corporate assets growth is not substantial over last year," said Ashis Biswas, Head of Technical Research at CapitalVia Global Research, who has a "hold" call on the stock with a target price of Rs 820.
Biswas, however, said the bank's substantial provisioning buffer and lower incremental stress will cushion.
The deposit franchise is gaining traction, and this tactical buffer will help improve the NIM forecast in the future. As a result, NIM is expected to increase in FY22 as the interest income reversal unwinds, he said.
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