Buy Axis Bank, target of Rs 1140: Sharekhan

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Sharekhan's research report on Axis Bank

Axis Bank reported strong earnings growth of 62% y-o-y/10% q-o-q, with RoA at 1.9%. Core PPOP grew 53% y-o-y/ 13% q-o-q. NIM expanded by 30 bps q-o-q to 4.26% (highest ever). However, there was a positive impact of 5 bps on NIM due to interest recovery on restructured NPA account (one-off). Loan growth remained healthy, up 15% y-o-y and 4% q-o-q, led by Retail, SME, and mid-corporate segments. However, retail loan growth was muted sequentially at 1%. Total deposits grew by 10% y-o-y/5% q-o-q, driven by non-retail term deposits (31% y-o-y/22% q-o-q), while CASA deposits growth was tepid at 10% y-o-y/1% q-o-q. CASA ratio moderated to 44.5% vs. 46.2% q-o-q. Slippages were higher by 13% q-o-q (2.3% annualised vs. 2.2% q-o-q), as slippages amounting to Rs. 400 crore were attributed from an account that bank considered prudent to downgrade despite the account was not overdue past 90 days.. Thus, core credit cost was also higher at 74 bps of average advances (annualised) vs. 42 bps q-o-q. With healthy recoveries along with contained write-offs, asset quality saw improvement with both GNPA and NNPA ratios declining by 12 bps q-o-q and 4 bps q-o-q to 2.38% and 0.47%. PCR at ~81%.

Outlook

The stock currently trades at 2.0x/1.7x/1.4x its FY2023E/FY2024E/FY2025E core BV estimates. We maintain our Buy rating on the stock with an unchanged PT of Rs. 1,140. Pick-up in retail deposits mobilisation remains the key monitorable going forward.