Motilal Oswal puts strong ‘buy’ on Axis Bank, projects 21% gain in share price

Domestic brokerage house Motilal Oswal has put a ‘buy’ tag on Axis Bank shares with an upside target of Rs 1,130 per unit, projecting a strong 21 percent gain from its Tuesday’s closing level of Rs 933.

The brokerage house, in a research report, bet on the bank for making its balance sheet granular, all the while increasing the mix of retail loans and improving its provision coverage ratio. This, the research report states, has improved its key metrics such as loan growth, margins and profitability.

“Axis Bank remains focused on building a stronger, consistent, and sustainable franchise. Since asset quality issues are behind, slippages and credit cost will be under control. While the bank will continue to make investments, it expects to bring down the cost-to-assets ratio to 2 percent by FY25-end,” the report marked out.

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At 11 am, the stock was trading at Rs 932 on the NSE, marginally lower than its previous day close of Rs 933. For the year, Axis Bank has gained 38 percent, outperforming Nifty Bank which has gained 22 percent.

The bank achieved its target of a consolidated RoE of 18 percent in 2QFY23, the report said, and remained on track to deliver a sustainable RoE of 18 percent in the medium term. The brokerage house estimates the bank to deliver FY25 RoA/RoE of 1.8 percent and 16.9 percent, respectively.

As per the report, Axis Bank is witnessing a healthy recovery as loan growth has improved to 14-18 percent in the past four quarters as against a 13 percent CAGR through FY19-22. The loan growth was driven by the retail book, which saw an 18 percent CAGR over FY19-22. Small business banking and rural loans have also registered a strong CAGR of 49 percent and 23 percent. Motilal Oswal has estimated a 17 percent CAGR loan growth over FY22-25.

Motilal Oswal has also made a positive projection about the bank’s asset quality, marking out that the credit cost of the bank is likely to undershoot its long-term average at 0.4-0.6 percent over FY22-25.

“Asset quality has improved significantly over the past few years, with slippages moderating to 3 percent in FY22 (2.1 percent in 1HFY23), which led to a decline in the GNPA ratio to 2.5 percent in 1HFY23 vs 5.1 percent in FY20. The net slippage ratio was also low at 0.8 percent/0.4 percent in FY22/1HFY23.”

The bank also has total provisions of Rs 11,630 crore, which amounts to 1.6 percent of the loan book and is the highest among its peers. Axis Bank’s PCR has also improved significantly to 80 percent in the second quarter of FY23, and the restructured book is negligible accounting for only 0.38 percent of loans, which, along with lower BB and below book, will keep the slippages in control.