YES Securities is bullish on Axis Bank has recommended buy rating on the stock with a target price of Rs 550 in its research report dated July 22, 2020.
YES Securities' research report on Axis Bank
Strong operating performance adjusted for conservative changes in accounting policies in areas of fee and expenditure recognition, provisioning for std. investments and red flagged accounts and NII reserving on std. advances. Bur for the impact of these changes, the reported PPOP and PAT would have been 12% and 240% higher than our estimate. Conservatism was also reflected in the bank adding Rs7.3bn to its contingent provisions balance which now stands at 1.2% of std. adv. and raising PCR on NPLs by 6 ppt. Axis Bank accreted capital during the quarter as the incremental asset growth was driven by high-rated corporate lending and investments. Portfolio under moratorium stands at ~10% in second phase. Morat book largely comprises retail customers who had opted for first moratorium. Retail morat portfolio in majority represents secured loans (HL & LAP) and ETB customers with prime bureau scores. On the first morat portfolio (not taken/offered second morat), the collection rate is 70-80%.
Outlook
Upgrading reco from ADD to BUY. Resilient PPOP, sizeable provisioning buffer, announced capital raise and reduction in morat pool to soften the Covid impact in coming quarters. Expect sharp recovery in RoA/RoE during FY22 as growth and credit cost near normalizes. Core bank trades at 1.3x FY22E P/ABV; valuation more sensitive to FY22 outcomes and not FY21.
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