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We attended Axis Bank’s Analyst Day 2022, wherein the bank demonstrated the execution of Growth, Profitability and Sustainability (GPS) strategy across business verticals along with the focus on One Axis with a view to sustainably achieve aspirational RoE target of 18%. Management showcased the use of technology/digital initiatives being implemented across verticals which in turn should improve operational efficiencies thus leading to increased customer engagement and delight. Management indicated that growth focus will remain on high RAROC segments including Bharat Banking, MSME + mid-corporate and unsecured retail, though wholesale segment growth is expected to come back. On the cost side, management has guided for an exit FY25E cost-to assets ratio of 2.0%; investments in key tech initiatives is nearly 2/3rd complete which along with growth in comparatively low cost wholesale segment should drive the cost downwards. Management continues to guide for sustainable NIMs of 3.7-3.8% (though we believe NIMs should sustain around 2Q23 levels of 3.96%) which along with moderation in opex and controlled credit costs should aid Axis to deliver on the aspiration RoE target of 18%. Citi acquisition is expected to be complete by Mar-May’23. Management alluded that capital levels were sufficient at this point of time (even post taking Citi acquisition into account) and they will relook at capital raise post the completion of the Citi acquisition based on the macro-economic conditions at that time. We believe AXSB’s transformation is in the right direction with sequential improvement in NIMs and expansion in return profile. Current core valuations of 1.7x FY24E BVPS are inexpensive and we expect the discount to larger private sector peers as AXSB starts reporting strong operating performance on a more sustainable basis. Maintain BUY with SoTP based TP of INR 1,000 valuing the core bank at 1.9x FY24E BVPS.

* Digital at the core: Axis Bank has made rapid investments in verious key tech/digital initiatives with a view to building a new distinct digital bank within the core bank which has capabilities to acquire customers at scale, rapid growth and favourable cost economics; management expects to achieve this aided by Axis bank’s superior digital capabilities and full suite of product and services leading to customer delight. Axis Bank’s Android mobile app is the world’s highest rated mobile banking app on Playstore which is a result of a) Open app (new and existing customers), b) revamped user experience, design and simplified customer journeys, c) hyper personalised nudges and d) low latency experience. Further, Axis has created successful partnerships across segments which have aided Axis in expanding its customer base, improve product proposition, increase geographical reach, enhance capabilities and faster time to market. Axis bank continues to invest further across business vertical and has a robust pipeline of partnerships for the next 18-24 months. Additionally, Axis bank is actively investing and developing 2 key tech platforms: a) Siddhi: aids Axis employees to engage seamlessly with customers and b) Sparsh: customer obsession programme at Axis with a view to increase NPS score. Axis has invested heavily in building its tech/digital capabilities over the past few years and management indicated that the investment is nearly 2/3rd complete and bank should start reaping fruits of this investment going ahead i.e. better operational efficiency and increased customer delight.

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