Prabhudas Lilladher's research report on Axis Bank
Our experience of attending the Axis Bank analyst day was positive as there seems to be a clear priority on profitability and consistency. Management sounded confident of maintaining operational performance as cushion on NIM would continue while medium term guidance is to reduce opex/assets by end FY25 to ~2% (FY22 was 2.18%) by focusing on segments that are opex lighter (CBG, BuB, SBB etc.). Loan growth would largely hinge on deposit accretion and as per AXSB system deposit growth could remain weak for 2-3 quarters, however, profitability would not be compromised. CITI acquisition may be a bit delayed and could see fruition post Q4FY23. Near term growth would be funded through internal accruals and capital raise would be evaluated only after CITI acquisition. Over medium term, bank would like to deliver on aspirational ROE of 18%. For FY24E/25E, we lower opex by 4.5%/6.5% and raise PAT by 5.5%/8.0%. With FY25E RoA/RoE at 1.6%/16% for AXSB, if earnings quality sustains each quarter, discount to ICICIB should narrow from 29% to 20%.
AXSB remains one of our top picks with compelling valuation at 1.8x and we maintain multiple at 2.3x on Sep’24 ABV. Reiterate BUY and slightly raise TP from Rs1080 to Rs1100.