Motilal Oswal is bullish on Axis Bank has recommended buy rating on the stock with a target price of Rs 600 in its research report dated April 26, 2018.
Motilal Oswal's research report on Axis Bank
AXSB reported a loss of INR21.9b, led by elevated provisions, as the bank accelerated recognition of stressed assets, leading to slippages of INR165.4b (15.4% annualized). NII stood at INR47.3b (flat QoQ/YoY; 2% miss). NIM contracted 50bp YoY, negating 18% YoY advances growth. Other income declined 7.5% YoY to INR27.9b due to weak treasury income against a high base. This, coupled with 10%/14% QoQ/YoY rise in opex, led to a 16% YoY decline in PPoP. Loan growth stood healthy at 18% YoY (+23% YoY in retail; +20% YoY in SME). Deposit base grew much faster off a sequentially low base at 11% QoQ. Reported CASA mix, thus, increased 500bp QoQ to 54% (46% on average basis, flat QoQ). Fresh slippages spiked sharply to INR165.36b (INR44.28b in 3QFY18), while upgrade/recoveries of INR34.0b and write-offs of INR38.9b led to a 37% QoQ increase in GNPA. Elevated provisions helped maintain PCR at 65% (66% in 3Q), leading to 41% QoQ growth in NNPA. 90% of corporate slippages came from the BB and below pool, the size of which stood at INR89.94b. Power/Metals/Infra sectors accounted for ~59% of total slippages. The bank indicated that BB and below book will continue witnessing additions resulting from downgrades over the next two quarters. However, incremental stress addition has peaked out and is expected to decline from hereon.
Outlook
AXSB has reported a weak quarter on the asset quality front and the management has indicated for normalization in credit cost from 2HFY19E only as asset quality pressures continue over the near term. However the stronger PCR (65% including technical write-off), potential improvement in Tier-1 as we build in the warrant conversion and steady trends in core business will help expand RoA to 1.1% by FY20E. We cut our earnings on sharp deterioration in asset quality and higher opex, thus driving 9% decline in our FY20E ABV. We value AXSB at INR600 per share (2.1x FY20E ABV for standalone bank) and value AXSB’s subsidiaries at INR35per share (post 20% holding company discount) in our SOTP valuation. Maintain BUY.
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