Buy Axis Bank\, target price Rs 600: Motilal Oswal

Motilal Oswal has given a buy rating to Axis Bank with a target price of Rs 600. The share price moved up by 5.60 per cent from its previous close of Rs 446.20. The stock’s last traded price is Rs 471.20.

Axis Bank (AXSB) reported in-line 1QFY21 earnings led by strong NII growth, controlled opex and sequential decline in provisions. Even PCR improved 580bp QoQ to 75%. Outstanding funded BB & below pool declined slightly to INR64.2b while moratorium book plummeted to 9.7%, which eased concerns on the asset quality outlook

Financials
For the quarter ended 30-06-2020, the company reported a Consolidated Interest Income of Rs 12835.67 Crore, down -.42 % from last quarter Interest Income of Rs 12889.52 Crore and up 9.45 % from last year same quarter Interest Income of Rs 11727.25 Crore. The bank reported net profit after tax of Rs 1108.10 Crore in latest quarter.

Investment Rationale
The brokerage said that Axis Bank reported a strong quarter amidst tough macro environment. It reported a sharp decline in moratorium book while asset quality ratios improved considerably. Earnings were in line as the bank adopted conservative accounting policies and further strengthened the balance sheet by making additional provisions; however, NII growth was robust despite moderation in margins. The sharp decline in the moratorium book eases concerns on asset quality/capital erosion – similar to the loss that the bank reported in 4QFY20 – bringing back focus on potential earnings/credit cost trajectory. Though the BB & below pool witnessed slight moderation, slippages are likely to remain elevated over FY21E and would be driven by such low-rated assets besides loans under moratorium. The brokerage has increased FY21/FY22E earnings by 12%/10% and estimate AXSB to deliver RoA/RoE of 1.0%/11.5% in FY22E.

Promoter/FII Holdings
Promoters held 15.7 per cent stake in the company as of June 30, 2020, while FIIs held 47 per cent, DIIs 24 per cent and public and others 13.4 per cent.