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Strong operational show; business momentum muted 

About the stock: Axis Bank is the third largest private sector bank in India with a balance sheet size of | 11.5 lakh crore as on June 2022.

* The bank has a large footprint across India with 4759 branches

* Retail and SME comprise ~69% of total loans

Q1FY23 Results: Profit driven by lower credit cost

* NII up 21% YoY and 6.4% QoQ, NIMs up 11 bps QoQ to 3.6%

* Provisions down 64% QoQ, PAT up 91% YoY | 4125 crore

* Loan growth at 14% YoY to | 7.01 lakh crore. Retail book up 25% YoY

* GNPA down 6 bps QoQ to 2.76%. R/s book was at 0.45% of GCA

What should investors do? Axis Bank’s share price has given flattish returns. However, we believe as operational performance improves and also synergy benefits from CITI acquisition come into play, it would reflect positively on price performance as well.

* We retain our BUY rating on the stock

Target Price and Valuation: We value Axis Bank at ~2.3x FY24E ABV and maintain our target price at | 970.

Key triggers for future price performance:

* Pedalling business growth with focus on unsecured segment to aid margin

* Cumulative provisions of 134% of GNPA provide comfort on asset quality and earnings volatility

* Strong capitalization to enable the bank to pedal higher business growth

* Fund raising for CITI acquisition possible as time arrives

Alternate Stock Idea: Apart from Axis, in our coverage we also like Kotak Bank.

* Kotak Mahindra Bank (KMB) is a powerful banking franchise with strong promoter led management. It has a presence across financial services value chain

* BUY with a target price of | 2200

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