Emkay Global Financial' research report on Axis Bank
The in-line NII and higher treasury income notwithstanding, Axis Bank reported a 10% miss on PAT (at Rs58bn) and 1.5% RoA, primarily due to significantly higher provisions as it tweaked its stress recognition policy on cash credit/overdraft (CC/OD) facility and owing to one-time settlement accounts. Adjusted for this technical impact, 1Q PAT is likely log at ~Rs64bn. Though the management had earlier given guidance for this policy change to ensure industry-best prudency, the extent of NPA formation is higher than expected. The management indicated that 1Q bore the impact of the stock plus flow, and so slippages during 9MFY26 should be relatively moderate (albeit elevated), as also the credit cost. Factoring this in, we cut FY26E/FY27E/FY28E earnings by 7%/3%/1%; we expect the RoA to dip to 1.6% in FY26E and gradually recover to 1.7%. The stock has already corrected recently and is trading at cheap valuations of 1.4x FY27E ABV/1.2x FY28E ABV.
Outlook
Hence, we retain BUY on Axis while maintaining our TP at Rs1,400, rolling forward the standalone bank valuation on 1.6x Jun-27E ABV and subs at Rs125/sh.
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