Emkay Global Financial' research report on AXIS Bank
Despite the relatively-moderate credit growth, Axis Bank reported strong core profit growth at 43% YoY/19% QoQ, on the back of robust margin expansion and contained opex, albeit partly offset by a subdued treasury performance. This, coupled with continued lower LLP, led to the 24% beat on PAT, which came in at Rs53.3bn. Credit growth was comparatively modest at 18% YoY/4% QoQ vs peers’ (23% YoY/6% QoQ), due to sluggish growth in the retail book at 23% YoY/3% QoQ despite a lower base. However, NIM expanded 57bps YoY/36bps QoQ to 3.96%, mainly on higher growth in the SME/mid-corporate book, higher LDR & re-pricing benefit. Mgmt aims to sustain margins at current levels, but reckons that cost pressure will increase as deposit growth accelerates. Factoring-in the better & faster than expected delivery on margins, coupled with contained opex, we expect the bank to clock healthy core-profitability CAGR at 25% over FY23-25E. This along with continued lower LLP, given higher specific + contingent provision buffer, should drive-up earnings. Thus, we revise our earnings by 15%/11%/6% for FY23E/24E/25E.
Outlook
We retain our long-term BUY rating on the stock. We revise our TP to Rs1,110/share (vs Rs1,020 earlier) valuing the standalone bank at 1.8x Sep-24E ABV and subsidiaries at Rs82/share, given the potential steady improvement in FY23-25E RoA/RoE to 1.6- 1.7%/16% (without factoring-in any capital-raise), respectively. That said, the bank will need to consistently deliver on growth/core profitability and maintain management stability for a re-rating.
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