Motilal Oswal sees up to 50% rise in this private bank stock

The retail business franchise has strengthened, with the share of retail loans improving to around 56% of total loans – led by home loans. The retail fee accounted for approximately 63% of the bank’s fees, reflecting the granularity in fee income, and was driven by card/third-party delivery.

On the liability side, CASA (Current Account Savings Account) + Retail Fixed Deposit accounted for around 83%, ensuring a relatively stable fund cost. “Axis Bank’s healthy PCR (Provisioning Coverage Ratio) of around 70%, with an additional provisioning buffer of 2.1%, is likely to protect its balance sheet from any potential stress. We estimate AXSB to be of 1.5%/14.6. Will deliver ROA/ROE.2% in FY23,” Motilal said.

The brokerage believes that improving product mix of Axis Bank is likely to improve margins in the short term.

“Valuations at 1.3x FY23E P/ABV appear compelling following the recent price correction (25% from its October high), whereas, the earnings outlook remains strong. We expect the growth momentum to continue with the improvement in economic activity. With lower cost of funds, this will support margins,” the note added.

For the quarter ended September, Axis Bank had reported a net profit of 3,382 crore on a consolidated basis driven by lower credit provisions as asset quality improvement. Its Managing Director and Chief Executive Amitabh Choudhary expressed confidence that the second half will be better as consumer and business confidence is reversing on the back of vaccination, adding that all legacy asset quality issues are now behind it.

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