Buy Axis Bank; target of Rs 1130: Motilal Oswal

Motilal Oswal's research report on Axis Bank

AXSB has progressed well over past few years and has strengthened its balance sheet by making it granular, increasing the mix of retail loans and improving its PCR. As a result, its key metrics such as loan growth, margins and profitability have improved. Loan growth is witnessing a healthy recovery with 14-18% growth over the past four quarters (vs 13% CAGR over FY19-22), driven by retail loans (18% CAGR). Small business banking (SBB)/rural loans posted a robust CAGR of 49%/23%. The rural and semi-urban market remains a key focus area, which should enable sustainable loan growth over the medium term. We, thus, expect a 17% CAGR in loans over FY22-25. AXSB has multiple levers in place to offset the rise in the funding cost as 68% of loans are floating, which, coupled with the rising mix of high-yielding loans and a gradual reduction in low-yielding RIDF bonds (3% of assets), should help margins. AXSB remains focused on building a stronger, consistent, and sustainable franchise. Since asset quality issues are behind, slippages and credit cost will be under control. While the bank will continue to make investments, it expects to bring down the costto-assets ratio to ~2% by FY25-end.

Outlook

The bank achieved its target of a consolidated RoE of 18% in 2QFY23 and remains on track to deliver a sustainable RoE of 18% in the medium term. We estimate AXSB to deliver FY25 RoA/RoE of 1.8%/16.9%. AXSB is our top pick for CY23 with a TP of INR1,130 (2.0x Sep’24E ABV + INR94 for subs).