Emkay Global Financial recommended hold rating on AXIS Bank with a target price of Rs 520 in its research report dated July 21, 2020.
Emkay Global Financial's report on AXIS Bank
In Q4, Axis Bank did heavy lifting in terms of Covid-19-related contingent provisions and reported a loss, but it returned to profitability in Q1 with Rs11bn in PAT despite reserving interest on potentially stressed loans and accelerating specific PCR as a prudent measure. The bank has adopted a conservative stance in extending the moratorium in Phase 2 (June’20) with a low moratorium rate of 9.7% and initiate collections. The collection rate is 72% in the book under the Phase 1 moratorium (25-28% of loans) and the rest is either part of the Phase 2 book (9.7% of loans) or in the SMA 1 pool, which may lead to higher NPAs in Q2 instead of deferring it for a prolonged period. The bank now carries a high specific PCR at 75%, at par with HDFCB and ICICI, while contingent provisioning buffer is far higher at 1.2% of loans. Its CET 1 stands at 13.5%, and has approval in place to raise Rs150bn to shore up the capital buffer.
Outlook
We like Axis’ increasingly prudent stance in the wake of the ensuing asset quality storm, but it needs to keep the frequent management rejig in check. We retain Hold/OW stance in EAP, with a TP of Rs520 (valuing core bank at 1.4x FY22ABV + subs value of Rs21).
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