Buy Axis Bank; target of Rs 875: Dolat Capital Market

Dolat Capital Market's research report on Axis Bank

Axis bank reported NII and PPoP growth of 11% and 17% YoY respectively. The miss in NII estimates was compensated by higher fee and treasury gains. Margins were stable QoQ at 3.56% despite improving CoF. Asset quality metrics improved sequentially with 85 bps decline in gross NPA ratio to 3.7%, contained slippages at 3.6% for the quarter, decline in ‘BB and below’ book by 40 bps QoQ 2% of advances, and restructured book at 0.3% of loans (against 0.5% for other large private peers). Limited SME restructuring (0.02%) and net slippages (5% of total) also allude that asset quality risks are limited/receding.

Outlook

With encouraging asset quality trends, improving core operating metrics, healthy capital and provisioning buffers, and increased traction in retail liabilities, the bank seems well poised to grow its book. Possible pressures on NIM given its higher CoF vs other large private peers remains a key risk. Tweaking our estimates marginally, we maintain BUY on the stock with revised TP of Rs875 (from Rs840 earlier), implying a multiple of 2.1x FY23E P/ABV.

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