Large Cap : Buy Axis Bank Limited For Target Rs.828 - Geojit Financial
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Continuous improvement in asset quality
Axis Bank offers a wide range of banking services in India that includes cash and credit management services, retail banking, investment management and treasury services amongst others.
• NII up 13.3% YoY (+17% QoQ), a steady growth in NII lead to operating profit growth of 13% YoY with stable NIM up of 3.49%.
• CASA deposits increased by 19.3% YoY (-4.2% QoQ) which will lead access to low cost of fund and help improve margins.
• Access to Citi bank’s consumer business division will help Axis bank to grow its deposits and advances stabilizing its asset quality driving banks’ performance over the period. We reiterate our BUY rating on the stock with a rolled forward target price of Rs. 828 based on roll forward 1.75x FY24E BVPS.
Improved profitability
Net interest income (NII) for the year increased 16.7% YoY to Rs. 8,819cr, supported by higher total interest income slightly offset by increase in total interest expense (+12.8% YoY). Interest income grew 14.7% YoY to Rs. 17,776 cr, with Net interest margin (NIM) remaining stable at 3.49% (vs. 3.56% in Q4FY21 and against 3.53% in Q3FY22). Total provisions saw a significant reduction of 79.2% YoY to Rs. 987cr this quarter. Bank’s net slippages declined by 0.42% QoQ (-1.15% YoY) and credit cost declined 116 bps YoY (-12bps QoQ). Capital adequacy ratio for the FY22 is 18.5% down from 19.12 in FY21 and CET-1 ratio of 15.2%. Net profit for the period increased by 53.8% YoY to Rs. 4,118cr (+52.0% QoQ).
Key concall highlights
• Bank has gained significant market share of 31% in 11MFY22 on merchant acquiring business making it the second-largest merchant-acquiring bank in the country with an installed capacity of 9.52 lakh terminals.
• The board recommended dividend of Re 1 per share for FY22.
• Gross NPAs and Net NPAs are down by 88bps and 32bps at 2.82% and 0.73% respectively.
• The manage remains optimistic and confident about the future of the Bank
Acquisition of Citibank’s Consumer Businesses in India
The Board have approved the purchase of Citibank’s India Consumer Business and the NBFC Consumer Business. The transaction is expected to close in Q4FY23, subject to regulatory approvals and customary conditions. The deal will add Rs. 50,200cr of deposits of which 73% is Savings a/c and 8% Current a/c.- which should strengthen Axis Bank’s journey on CASA, LCR accretion and will increase Wealth AUM by 42% to Rs. 3,77,600cr.
Outlook and valuation
Axis Bank has witnessed sequential improvements in its margins on account of steady growth in lending and subsequent reduction in provisions. The bank has maintained impressive credit growth momentum and asset quality continues to improve as well. Hence, we remain positive on the bank’s performance over the coming quarters and reiterate our BUY rating on the stock with a rolled forward target price of Rs. 828 based on 1.75x FY24E BVPS.
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