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Axis Bank Stock ‘Top Pick for CY23,’ Says Motilal Oswal; Sees 21% Upside

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Last Updated: December 28, 2022, 15:40 IST

Shares of Axis Bank were in focus on Wednesday after financial services firm Motilal Oswal gave a buy call to the private lender with an upside of 21 per cent and a target price of Rs 1,130 per unit. Motilal Oswal said Axis Bank was its top pick, mentioning that the growth outlook of the lender was gaining traction.

The brokerage house, in a research report, bet on the bank for making its balance sheet granular, all the while increasing the mix of retail loans and improving its provision coverage ratio. This, the research report states, has improved its key metrics such as loan growth, margins, and profitability.

“Axis Bank remains focused on building a stronger, consistent, and sustainable franchise. Since asset quality issues are behind, slippages and credit costs will be under control. While the bank will continue to make investments, it expects to bring down the cost-to-assets ratio to 2 per cent by FY25-end,” the report marked out.

The bank achieved its target of a consolidated RoE of 18 per cent in 2QFY23, the report said, and remained on track to deliver a sustainable RoE of 18 per cent in the medium term. The brokerage house estimates the bank to deliver FY25 RoA/RoE of 1.8 per cent and 16.9 per cent, respectively.

As per the report, Axis Bank is witnessing a healthy recovery as loan growth has improved to 14-18 per cent in the past four quarters as against a 13 per cent CAGR through FY19-22. The loan growth was driven by the retail book, which saw an 18 per cent CAGR over FY19-22. Small business banking and rural loans have also registered a strong CAGR of 49 per cent and 23 per cent. Motilal Oswal has estimated a 17 per cent CAGR loan growth over FY22-25.

Motilal Oswal has also made a positive projection about the bank’s asset quality, marking out that the credit cost of the bank is likely to undershoot its long-term average at 0.4-0.6 per cent over FY22-25.

“Asset quality has improved significantly over the past few years, with slippages moderating to 3 per cent in FY22 (2.1 per cent in 1HFY23), which led to a decline in the GNPA ratio to 2.5 per cent in 1HFY23 vs 5.1 per cent in FY20. The net slippage ratio was also low at 0.8 per cent/0.4 per cent in FY22/1HFY23.”

The large cap stock is trading 2.8 per cent away from the 52-week high of Rs 958.9 hit on December 21, 2022. In the current session, the banking stock was trading flat at Rs 932.20 against the previous close of Rs 932.55 on BSE.

Total 0.20 lakh shares of the firm changed hands amounting to a turnover of Rs 2.03 crore on BSE. The market cap of the bank stood at Rs 2.86 lakh crore on BSE today. Axis Bank stock has gained 37.98 per cent in one year and has risen 37.34 per cent since the beginning of this year. In a month, the stock has gained 4.55 per cent. The stock hit a 52-week low of Rs 618.10 on June 23, 2022.

The lender posted a healthy set of earnings in the September quarter.

Axis Bank logged a 70 per cent year-on-year (YoY) rise in net profit at Rs 5,329.77 crore against a profit of Rs 3,133.32 crore in the corresponding quarter last year. Net interest income (NII) in Q2 climbed 31 per cent YoY to Rs 10,360 crore. Net interest margin (NIM) for the quarter came in at 3.96 per cent, up 57 basis points (bps) YoY and 36 bps sequentially. Core operating profit for the quarter climbed 43 per cent YoY Rs 7,802 crore.

HDFC Securities is also bullish on Axis Bank and has assigned a target of Rs 1195 in 2023. Axis Bank shares have been rising for the last three sessions. Currently, the stock is trading higher than the 5-day, 20-day, 50-day, 100-day, and 200-day moving averages.

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