This Private Sector Banking Stock Grew 19.43% In 3 Months, Buy For Robust 35% Returns

HDFC Securities has initiated a buy call on Axis Bank Limited (AXSB) With a target price of Rs. 1,195 per share. The brokerage expects a possible gain of up to 35% with the given target price. AXSB is a leading third largest private sector bank in India. Axis Bank is the third largest private sector bank in India with a market cap of Rs 2,72,666 crore. The Bank offers the entire spectrum of financial services to customer segments covering Large and Mid-Corporates, Agriculture, MSME, and Retail Businesses.

Stock Outlook & Returns

The current market price (CMP) of the AXSB stock on the NSE is Rs 887.75 per share. The CMP of the stock is 1.05% above the previous close. Its 52-week high level is Rs. 919.95 recorded on 27 October 2022 and its 52-week low is Rs 618.2 recorded on 23 June 2022, respectively.

The stock in a week has given 3.32% positive returns, whereas, in a month, it has fallen 1.67%. In 3 months, the stock has given 19.55% positive returns. The stock has delivered a profit of 30.57% over the past year. In the previous three years, the stock surged by 17.62%. In the previous five years, the stock has returned 62.91% positive returns.

new profit growth engines

MSME + SURU + unsecured retail = new profit growth engines

AXSB is inching up its exposure to MSMEs (including mid-corporate), Bharat Banking (rural and semi-urban markets) and unsecured retail (Personal loans + Credit cards), which are likely to emerge as new growth drivers. Unsecured retail is likely to be led by KTB customers (through partnerships) and NTB customers (AA framework etc.), while SURU (Semi-Urban + Rural) is likely to be driven by branches, and FinTech partnerships. The SURU strategy is likely to help address the bank's PSL shortfall, especially in a couple of specific buckets. 

Tech investments to sustain; digital journeys WIP

AXSB's transformation journey in enhancing its digital capabilities and transformation remains WIP, although a bulk of the heavy lifting in terms of building core blocks appears to be largely done. "While AXSB has maintained that continued digitisation of several customer journeys and new product launches are likely to keep near-term tech spends elevated, we see significant potential for sustained medium-term productivity gains from the continued investment phase," the brokerage has said. 

Deposit re-pricing headwinds inevitable

AXSB's deposit mobilisation and re-pricing of deposits are likely to emerge as a near-term headwind for its aspirational loan growth rate. The bank is currently pricing its deposits 15-25 bps lower than its peers in an increasingly tightening liquidity environment. 

Early promise calls for gradual convergence with peer

AXSB finally seems to be on track to deliver steady performance with lower shocks. "While the bank is on track to deliver ~14-15% RoE over the next couple of years, we argue that enhanced productivity and gradual exercising of pricing power in chosen segments could drive sustained medium-term RoEs. We argue for a gradual convergence in valuation multiples with ICICIBC," the brokerage has said. 

Future-proofing efforts meet early-stage gains, buy

Axis Bank (AXSB) showcased its transformation journey and outcomes over the past three years. The heavy Tech investments (2.5x in past 3 years) and re-jigged portfolio granularity on both sides of the balance sheet are gradually yielding positive results at the margin. While AXSB is likely to continue its investment phase, resulting in elevated opex ratios, the bank is incrementally focused on high-yielding profit pools by leveraging its branch network, digital capabilities and partnerships to drive productivity gains. "Deposit mobilisation is likely to remain a challenge and our forecasts factor in loan/deposit CAGR of 17%/18% over FY22-FY25E due to an untenably high loan-to-deposit ratio (~90%). While we expect near-term RoAs to come off as deposit pricing catches up, we are now relatively more constructive on potential medium-term RoEs for the franchise. Maintain BUY with a TP of INR1,195 (standalone bank at 2.2x Sep-24 ABVPS), even as we argue for gradual convergence with ICICIBC valuation multiples," the brokerage has said. 

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.