Buy Axis Bank; target of Rs 850: Emkay Global Financial
Emkay Global Financial is bullish on Axis Bank has recommended buy rating on the stock with a target price of Rs 850 in its research report dated January 27, 2021.
February 02, 2021 / 03:36 PM IST
Emkay Global Financial's report on Axis Bank
Axis reported a lower PAT of Rs11bn (vs. estimate of Rs19bn) mainly due to higher opex and elevated provisions. The bank has maintained a provisioning buffer of 2.1% of loans (best among peers) to largely absorb the asset quality pain in FY21 and walk into FY22 with a stronger balance sheet to ride the ensuing growth wave. Overall credit growth continues to disappoint (up 6% yoy) due to corporate drag, but clocks better growth in retail/SME. The bank resisted giving numerical guidance on growth in FY22, but we expect a better growth trajectory on the back of the strong balance sheet and reviving retail/corporate credit demand. Overall proforma GNPA ratio of 4.6% was in line with the expectation, while restructuring pool at 0.4% (with no major risk of spill over in Q4) was far lower than management’s own guidance, pointing to lower LLP in FY22/FY23 (160/110bps vs. 260bps in FY21).
We like Axis’ aggressive stance to front-load provisions, which could depress RoA/RoE at 0.7%/7% in FY21E but should improve to 1.5%/15% by FY23E, aided by better growth, cost ratios and moderate provisions. Retain Buy with a TP of Rs850, valuing core bank at 1.9x FY23 ABV and subs at Rs40.
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