Buy Axis Bank, target Rs 825: MotilalOswal Financial Services

MotilalOswal Financial ServicesNSE -1.36 % has given a buy recommendation on Axis Bank with a target price of Rs 825. Shares of Axis Bank traded at Rs 680 around 12:15 pm on 31 July, 2019. The brokerage has set a one-year horizon for the stock to hit the target price. 

“We recommend a buy with a target price of Rs 825 (2.5 times FY21E ABV),” said the brokerage. 
Axis Bank reported Q1FY20 PAT of Rs 1,370 crore (brokerage’s estimates: Rs 1,650 crore) against Rs 700 crore in Q1FY19. 

The miss in the quarter, as per the brokerage, was led by higher provisions, including one-off provisions toward non-fund facilities and stressed accounts outside NPA (Rs 990 crore). 
NII increased 13 per cent YoY which, as per the brokerage, was in-line with expectations. NIMs fell 5bps QoQ to 3.4 per cent. 
Other income grew 32 per cent YoY to Rs 3,860 crore, led by treasury gains of Rs 830 crore and strong traction in retail fee (up 28 per cent YoY). Corporate fees declined 1 per cent YoY to Rs 270 crore. 

Loan growth stood at 13 per cent YoY to Rs 4,90,000crore. Domestic loans grew at 19 per cent YoY, led by 22 per cent YoY growth in retail loans. 
Overseas book declined 34 per cent YoY and formed 7.2 per cent of total loans. 
Deposits grew at 21 per cent YoY (down 1 percent QoQ), led by 34 per cent YoY growth in TD deposits. 
Daily average CASA was stable sequentially at 41 per cent, though period-end CASA declined 300bp QoQ. 
Fresh slippages increased to Rs 4,800 crore, while upgrade and recoveries (Rs 2,180 crore) and write-offs (Rs 3,000 crore) facilitated a 1 per cent QoQ decline in GNPA. 
Calculated PCR improved 30bp QoQ to 62.5 per cent (78 per cent including TWO). 

Axis Bank downgraded Rs 2,240 crore of stressed assets into the BB & below pool, resulting in a flattish trend in BB and below assets at Rs 7,500 crore. Axis Bank disclosed total (fund and non-fund) exposure to eight stressed accounts of Rs 12,200 crore, of which Rs 5,100 crore is already part of BB & below or NPA. 

Valuation and view 

“Axis Bank has delivered a modest quarter in a challenging economic environment,” said the brokerage while cutting its FY20/21 earnings estimates by 7 per cent/6 per cent to factor in the slight increase in its credit cost. 
“Post a strong performance of last couple of quarters, Q1 earnings and outlook reflect the deterioration in the underlying lending environment, which can further risks our estimates,” the brokerage added. 

Core operating profitability is getting good, helping to mitigate some credit cost pressures. Improvement in RoA and RoE matrix will be a key to sustain the stock’s performance, said the brokerage. 

Disclaimer: This recommendation is analyst’s own and does not represent those of & Please consult your financial advisor before taking any position in the stock/s mentioned.

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