Shares of Axis Bank tanked over 7 percent intraday Wednesday on rising concerns over ist asset quality. The private lender’s stressed assets were significantly higher in September quarter.
Slippages (excluding sale to asset restructuration company) declined sequentially to Rs 590 crore versus Rs 1190 crore. However, during the quarter, the bank sold Rs 1820 crore of loans to ARC for net consideration of Rs 650 crore. Loss on sale has been absorbed in Q2 using Rs 850 crore of contingency provisions and Rs 340 crore additional NPA provisions. The company has maintained guidance of stressed asset addition of Rs 5700-6000 crore and 90 basis points credit cost guidance for FY16.
However, analysts are not worried about the bank’s asset quality and remain bullish. Barclays retains overweight on the stock but reduced target price to Rs 629 from Rs 633 per share. It has also cut FY16/17 earnings per share by 4 and 3 percent respectively on back of increased credit costs. It feels one of few reasons for overweight rating as Axis remains well captialised though lumpy credit events remain a risk and stress sector exposure is substantial.
Credit Suisse maintains outperform rating but cuts EPS by 2-3 percent and target is lowered to Rs 626 from Rs 654 per share. It says though asset quality stress is likely to remain elevated, it is relatively better placed with strong pre-provision profit and loan growth is strong.
Bank of America Merill Lynch also retains buy rating with a slashed target by 10 percent to Rs 650 per share. It says that the bank is clearly taking away market share from others but asset quality is disappointing.
Motilal Oswal reiterates buy rating with a target price of Rs 650 per share but cuts earnings by 3 percent. "The bank has utilised moderate growth phase to build capacity and is geared to ride the next growth cycle with strong capitalisation, healthy return on assets (RoA) and expanding liability franchise," it says in a note.
Religare maintains buy with a target price of Rs 750 per share it feels the bank’s loan growth remained strong with the momentum expected to continue ahead.
Its net profit rose 18.9 percent year-on-year to Rs 1,915.6 crore, aided by other income, operating profit and lower provisions but impacted by higher tax cost. Net interest income, the difference between interest earned and interest expended, grew by 15.2 percent to Rs 4,062 crore compared to Rs 3,524.9 crore in same period driven by strong advances growth. Gross non-performing assets (NPA) remained flat at 1.38 percent on yearly basis but marginally increased compared to 1.34 percent in year-ago period.
At 11:08 hrs Axis Bank was quoting at Rs 489.30, down Rs 32.00, or 6.14 percent on the BSE.
Posted by Nasrin Sultana