(Rating: BUY, Target Rs 775, Upside 22.6%)
Asset quality indicators point towards significantly lower credit cost in FY22/23
- Adjusted for the impact of stress recognition (proforma slippages and restructuring) in the form of significant interest reversals and accelerated provisioning, the earnings performance of AXSB was reasonably healthy. Rather, the manifestation of stress at a palatable 1.5% of customer assets was lower than anticipated by the management and investors.
- Reversion of collection efficiency to normal levels (98% in December v/s 97% pre-Covid) and normalization of resolution rates across collection buckets and in various products, point towards lower and stable slippages in the coming quarters. In addition, the bank has consistently underwritten better-quality loans (by products and customer credit standing) in Corporate, Retail and SME segments.
- While the management has explicitly guided at elevated provisions in Q4 FY21 for further strengthening the balance sheet, the credit cost should come down from FY22. This underpins our sharp RoA expansion thesis for the bank over FY21-23. Margins too will be supportive of this with LDR expected to improve and excess balance sheet liquidity being redeployed as loans over the coming quarters.
- Robust capital position and a leading market position in most product segments will likely drive 12-15% loan growth in the next two years. AXSB trades at an undemanding valuation of 1.4x FY23 P/ABV (10% discount to ICICIBC) adjusted for the value of its subsidiaries.
Shares of AXIS BANK LTD. was last trading in BSE at Rs.631.9 as compared to the previous close of Rs. 658.6. The total number of shares traded during the day was 777468 in over 17891 trades.
The stock hit an intraday high of Rs. 663.6 and intraday low of 627.5. The net turnover during the day was Rs. 497893182.