Largecap Bank Has Strong NIM Guidance, Ties Up With Tata Group, Buy Stock For 40% Return: Emkay Global

Top brokerage firm Emkay Global recommends investors to buy the stocks of Axis Bank. The bank has retained NIM guidance at 3.7-3.8% for the next 8-10 quarters on a better portfolio mix and run-down in RIDF bonds. Additionally. Recent reports inform that Tata Motors has tied up with the bank for providing an exclusive EV (electric vehicle) dealer financing solution.

Stock To Buy: Target Price, Current Market Price

The Current Market Price (CMP) of Axis Bank is Rs. 727. Emkay Global has estimated a Target Price for the stock at Rs. 1020. This stock has the potential to give a 40.20% return, in the upcoming 1 year. This is a large-cap stock with a market capitalization of around Rs. 222,604 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 727
Target Price	Rs. 1020
Potential 1 year return	40.20%
52 week high share price	Rs. 866.90
52 week low share price	Rs. 618.25

Despite subdued credit growth, Axis Bank reported healthy growth in NII/fees, and core profitability grew by 17% yoy after a long gap. This, PAT was at Rs. 41.2bn, up 91% yoy despite elevated opex. Despite lower slippages at Rs. 37bn/2.4% of loans, the GNPA ratio was largely flat at 2.8% due to slow growth.

Emkay Global: Why Should You Buy This Stock?

Maintaining a buy rating, Emkay Global said, "Credit growth was slow at 14% yoy/down 1% qoq vs. much higher growth for peers, mainly due to declines in corporate/overseas/SME books. However, retail growth remained healthy at 25% yoy/3% qoq, with strong growth in unsecured loans, but mortgage growth was surprisingly slower than peers. Better portfolio mix/asset re-pricing led to an 11bps qoq improvement in NIMs to 3.6%."

"We expect the bank's RoA/RoE to improve to 1.6%/16% by FY25E - up from 1.2%/12% in FY22. That said, the Citi portfolio acquisition calls for shoring up capital levels and could lead to a dilution in RoEs. We maintain our long-term Buy rating on the stock, given the steady improvement in RoEs and reasonable valuations. That said, the bank will have to consistently deliver on growth/core profitability and maintain management stability for a re-rating. However, key risks are higher-than-expected NPA formation and expenses; and any signs of management instability, which has moderated a bit recently," the firm added.

Company Portfolio

Axis Bank is the third largest private sector bank in India. The Bank has a large footprint of 4,758 domestic branches (including extension counters) with 10,990 ATMs & 5,972 cash recyclers spread across the country as of 31st March 2022. The Bank has 6 Axis Virtual Centers with over 1,500 Virtual Relationship Managers as of 31st March 2022. The Overseas operations of the Bank are spread over eight international offices. The bank carries a healthy specific PCR of 77%/Covid provisions at 0.7% of loans, which should keep LLP under check. The bank had withdrawn near-term cost guidance in Q4 citing volatility but has now guided for a medium-term cost-to-asset ratio of 2%, driven by better productivity.

Disclaimer

The above stock was picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.