Anand Rathi Advocates Buying Axis Bank Shares, Targets Rs 1610
Axis Bank Sees Improved Asset Quality and Loan Growth
Axis Bank has seen a significant improvement in its asset quality and loan growth, according to a recent research report by Anand Rathi. The bank's gross and net slippages declined to 1.63% and 0.69%, respectively, on a year-over-year basis, closing the gap with its peers on this metric.
In terms of loan growth, Axis Bank accelerated to 18.5% year-over-year, outpacing the system and its peers, including Kotak, ICICI, and HDFC. This represents a 250 basis points increase over the previous quarter. Meanwhile, deposit and CASA growth at 13.9% and 10.6%, respectively, were in line with its peers.
However, despite the improvement in loan growth, the bank's calculated net interest margins (NIMs) declined by approximately 7 basis points on a quarter-over-quarter basis, resulting in a lag in NII growth compared to balance sheet growth. The bank's operational efficiency continued to improve, with operating expenses growing at 6.4% year-over-year, lagging behind balance sheet growth and driving a 21 basis points year-over-year improvement in the opex/asset ratio.
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Looking ahead, Anand Rathi expects Axis Bank's loan growth to sustain at around 100-150 basis points above the industry average. The bank is also expected to maintain stable NIMs and improve its operational efficiency and asset quality, driving an average return on equity (ROE) of 14.5% in FY27/28.
| Bank | Loan Growth (Y/Y) | Net Interest Margins (NIMs) |
|---|---|---|
| Axis Bank | 18.5% | -7bps q/q |
| Kotak | - | - |
| ICICI | - | - |
| HDFC | - | - |
Axis Bank remains the preferred pick among large-cap banks due to its average valuation discount of around 20% compared to its peers and higher growth and ROE compared to HDFC and ICICI. The research firm's sell-side target price for Axis Bank stands at Rs1,610, valuing the core bank at 1.6x FY28E price-to-book value (P/ABV) and its subsidiaries at Rs147/share.
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Axis Bank is a top pick among large-cap banks due to its strong growth prospects, improving asset quality, and valuation discount.
Investor Takeaway
Investors should consider Axis Bank as a preferred pick in large cap banks due to its higher growth and ROE compared to HDFC and ICICI.
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