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What should investors do with Axis Bank stock post Q2 results: buy, sell or hold?

Axis Bank had reported an 86.2 percent year-on-year growth in standalone profit at Rs 3,133.32 crore for the September quarter following a significant drop in provisions

October 27, 2021 / 06:00 PM IST

Axis Bank stock price was trading over 3 percent lower on October 27 even after the private lender posted a good set of numbers for the September quarter.

Axis Bank on October 26 reported a healthy 86.2 percent year-on-year (YoY) growth in standalone profit at Rs 3,133.32 crore (Q2FY22) for the quarter ended September 30,2021 following a significant fall in provisions. Profit in the year-ago quarter stood at Rs 1,682.67 crore.

Net interest income (NII), the difference between interest earned and interest expended, grew by 7.8 percent to Rs 7,900 crore compared to the corresponding period of the last fiscal, with a 10 percent growth in the loan book.

Net interest margin (NIM) contracted to 3.39 percent in the quarter, compared to 3.46 percent in the June quarter and 3.58 percent in the September 2020 quarter. Cost of funds declined further to 3.87 percent from 3.97 percent in Q1FY22 and 4.60 percent in Q2FY21.

The stock was trading at Rs 812.25, down Rs 30, or 3.56 percent, at 9.51 am. It has touched an intraday high of Rs 842.20 and an intraday low of Rs 805.15.

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Here is what brokerages have to say about the stock and the company following the second-quarter earnings:

CLSA: Rating: Buy | Target: Rs 1,080

The bank posted strong asset quality but weak pre-provision operating profit (PPoP). The research firm has cut PPoP estimates by 2-4 percent but has kept profit estimates unchanged. The bank has lagged peers on loan and PPoP growth, it said.

Morgan Stanley | Rating: Overweight | Target: Rs 1,000

The research firm said asset quality was strong, which reflected in lower slippages and credit costs. Profit, however, missed estimates owing to lower PPoP. It has reduced PPoP estimates for the near-term but expects an improvement over the next two-three years.

Jefferies | Rating: Buy | Target raised to Rs 1,020 from Rs 910

The global research firm is of the view that Q2 profit was ahead of estimates aided by lower credit cost, adding that moderation in slippage and low restructuring was positive.

The bank's loan growth slowed as pick-up in retail and SME was offset by a fall in corporate loans. NIM was below that of peers and closing the gap could take time.

ICICI Securities | Rating: Buy | Target: Rs 842

Axis Bank’s earnings surprised positively on portfolio quality despite elevated slippage recoveries, upgrades pulled GNPAs down 32bps QoQ to 3.53 percent, restructuring at mere 0.64 percent and credit cost contained at 1.4 percent (better than our estimate of 1.7 percent) reinforces adequacy of the existing buffer.

However, this was offset by growth momentum lagging peers, portfolio mix shift weighing further on NIMs and operating cost being elevated with 36 percent YoY/17 percent QoQ growth.

Moderating credit cost trend is encouraging and now growth acceleration, coupled with NIM improvement, would be critical triggers to deliver superior RoEs. We expect earnings CAGR of higher than 58 percent over FY21-FY23E and RoE of more than 14 percent by FY23E.

We maintain “buy” with a revised target price of Rs 992 from Rs 942, assigning 2.4x FY23 book.

Key risks include lower than anticipated growth that can cap RoE improvement and also elevated opex.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.

 
Moneycontrol News
first published: Oct 27, 2021 10:49 am
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