Buy Axis Bank; target of Rs 840: Dolat Capital Market

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Dolat Capital Market's research report on Axis Bank

Axis bank reported NII and PPoP growth of 14% and 6% YoY respectively, impacted by reversal of interest and fee income, adjusted for which growth would stand at 19%/14% respectively. NIM were stable QoQ at 3.6% despite a 30 bps impact of interest reversals, benefitting from improving spreads. Pro forma NPAs increased by 27 bps QoQ to 4.55%, with pro-forma PCR at 75%, amongst the highest in industry. Slippages (pro forma) were contained at 2.5% for 9MFY21 and 4.7% for Q3FY21 (annualized) against 4% for FY20. Management estimates ~0.4% of customer assets (~Rs27bn) to be restructured, below industry levels and better than their earlier guidance of Rs75bn. Provision coverage on overall restructured book was at 26%, with 100% provision made on unsecured retail restructured book. Over 60% of restructuring is from the corporate book.

Outlook

We lower our slippage estimate for FY21E to 2.8% from 4% earlier, upgrading earnings by ~30% for FY21E/22E. With encouraging asset quality trends, declining concentration risk in wholesale book, improving core operating metrics ex of the one-offs this quarter, increased traction in retail liabilities, we upgrade our rating to BUY from ACCUMULATE with revised TP of Rs840, implying a multiple of 2.1x Dec-22E P/ABV.

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