Buy Axis Bank Ltd For Target Rs 1,600 By Emkay Global Financial Services Ltd
Axis Bank delivered sector-beating credit growth of 18.5%, while margins stabilized at 3.6% after 4 quarters of decline. Asset quality improved further, with the GNPA ratio declining 17bps QoQ to 1.23%, led by lower slippages, but the bank prudently set aside Rs20bn in provisions to absorb any asset quality impact from business disruptions linked to the ongoing West Asia conflict. This led to nearly in-line PAT of Rs70.7bn and RoA of 1.6%. The management expects growth momentum to remain healthy in FY27 but refrain from any quantifiable growth guidance amid current geopolitical uncertainties. We expect margin recovery in FY27E (mainly in 2H) led by lower funding costs, which, coupled with lower credit costs, should drive up RoAs to 1.6-1.8% over FY27-29E from 1.4% in FY26. The stock is currently trading at cheap valuations of 1.5x FY28E ABV. Hence, we retain BUY on Axis with an 8% upward revision in TP to Rs1,600 from Rs1,475, rolling forward the standalone bank valuations on 1.7x FY28E ABV and subs at Rs137/sh.
System and peers beating growth; stable sequential margin
AXSB delivered industry-leading credit growth of 18.5% YoY/6.4% QoQ, driven by strong momentum in corporate (+38% YoY) and SME (+24% YoY) segments, while retail growth improved gradually to 8% YoY. The management stated that its wholesale strategy remains unchanged, emphasizing selective, quality-led growth over volume expansion, with incremental lending focused on cyclical and macro-favored sectors such as power, CRE, data centers, NBFCs, and manufacturing. NIM was stable at 3.62% due to gradual deposit repricing, while the management expects it to recover to the 3.8% through-cycle target over 15–18 months following full rate transmission.
Easing slippages drive GNPA improvement; one-off provision built as buffer
Gross slippages declined sharply to Rs47bn (1.8% of loans), led by lower agri slippages; however, higher recoveries and write-offs drove a 17bps QoQ improvement in GNPA to 1.2%. Slippages ex-technical NPAs remain low at 1.2% of loans. The bank also created a one-time Rs20bn standard asset provision in Q4 against a stress-tested loan pool as a buffer for macro and geopolitical risks, which can be utilized in FY27 if any stress, including from West Asia, materializes.
We retain BUY with a revised-up TP of Rs1,600
We expect margin recovery in FY27E (mainly in 2H) led by lower funding costs, which, coupled with lower credit costs, should drive up RoAs to 1.6-1.8% over FY27-29E from 1.4% in FY26. The stock currently trades at cheap valuations of 1.5x FY28E ABV. Hence, we retain BUY on Axis with an upward revision in TP by 8% to Rs1,600, rolling forward the standalone bank valuation on 1.7x FY28E ABV and subs at Rs137/sh. Key risks: macro dislocation, delay in unsecured retail NPA stress moderation, KMP attrition.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
