Axis Bank Q4: Stellar numbers can deliver up to 32% returns

Private sector lender Axis Bank reported a stellar performance for the March quarter, posting a net profit of Rs 2,677 crore as against a net loss of Rs 1,387.8 crore in the year-ago quarter.

The bank’s Net Interest Income (NII) grew 11% YOY to Rs 7,555 crores in Q4FY21 from Rs 6,808 crores in Q4FY20. Net interest margin (NIM) for Q4FY21 was 3.56%, as against 3.55% for Q4FY20.

For the March quarter, Axis Bank’s Gross NPA and Net NPA stood at 3.70% and 1.05% respectively as against 4.55% and 1.19% as of 31st December 2020. This reflects a decline of 116 bps and 51 bps respectively on a YoY basis and a decrease of 85 bps and 14 bps on GNPA and NNPA respectively on a sequential basis.

Here is what brokerages have to say about the stock post stellar Q4 earnings:

Motilal Oswal | Target Price: Rs 925 | Upside: 32%

Axis Bank has delivered a strong performance and appears well-positioned to report robust earnings traction. Moreover, moderation in fresh slippages, coupled with improved underwriting and an increasing retail mix, would help maintain strong credit cost control. On the business front, retail disbursements reached an all-time high during the quarter, with strong disbursements seen in Home Loans (+45% QoQ) and loan against property (+51% QoQ). The bank delivered strong sequential growth across segments. On the asset quality front, total restructuring stood at 0.3% of loans. Furthermore, the bank has ~72% coverage on GNPL and also holds an additional provision buffer of 2% to protect the balance sheet against any potential stress. Credit cost to decline to 1.5%/1.3% over FY22/FY23. Increase FY22/FY23E earnings by 12%/6% and estimate it to deliver Return on Assets/Return on Equity of 1.7%/16.4% in FY23.

Sharekhan | Target Price: Rs 900 | Upside: 29%

Axis Bank is available at 2.2x/2.0x its FY2022E/FY2023E adjusted book value. Valuations are reasonable and there is potential for re-rating as earnings pickup and economic scenario normalises. A conservative provisioning policy, comfortable capitalisation, overall franchise value, and a high provision coverage ratio (PCR) are positives and will help the bank ride over medium-term challenges and provide support to growth and valuations. Completion of the deal with Max Financial Services and other bancassurance partnerships augur well for fee income sustainability and growth in the long run.

Phillip Capital | Target Price: Rs 830 | Upside: 19%

Axis bank is well poised to capture market share given that the fact that corporates have consolidated their banking relationship with top banks; digital capabilities in retail credit delivery is the key loan book driver and PSBs/ NBFCs, which cater to the self-employed segment, would take time to come out of the current asset quality cycle. Encouraging collection rate; predominant presence in the salaried segment within the retail and higher exposure to better rated corporate provides conviction on asset quality. A provision buffer of Rs 12,000 crore (1.95% of GCA) will provide a reasonable cushion to likely asset quality headwinds owing to economic slowdown during the second wave of the pandemic. The bank will bounce back in terms of return ratio in FY22 as it prepones provision and builds a strong contingency buffer. Return on Assets of 1.4%/1.5% in FY22/23. At CMP, the stock trades at 1.9x/1.6x FY22/23 average book value per share of Rs 340/386.

Yes Securities | Target Price: Rs 825 | Upside: 18%

Adjusted for catch‐up provisions on the commercial banking portfolio and full provisions made on security receipts investments, the annualized core credit cost stood at 1.2% for Q4. This depicts structural improvement and a sustainable trajectory reflecting various initiatives taken by the bank in recent years, such as focus on high‐rated customers across segments, tightening of underwriting, strengthening of provisioning policies, etc. Axis Bank did not augment nor utilized its Covid buffer standing at 80 bps of loans, which implies a significant cushion for any potential impact on asset quality from the second wave of the pandemic.

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