Stock to Buy Today- Axis Bank

MO Investment Idea – Axis Bank
(CMP : INR826   TP : INR975, 18% Upside, Buy)

Axis Bank delivered a stellar performance in 2QFY23, driven by margin expansion and a significant decline in provisions along with improving trends in cost metrics. PAT grew by 70% YoY, largely driven by higher NII and lower provisions, which declined 51% YoY. The business registered robust growth of 18% YoY growth in advances. The large and mid-corporate segment also came back with a 6% QoQ growth, after witnessing a decline in 1QFY23

Retail business has strengthened, with its share improving to 58%, led by Home loans. Retail constituted 93% of fees, indicating granularity in fee income. 100% of personal loans and 71% of credit card debt were toward salaried customers. On the liability side, the share of CASA and retail term deposits stood at ~82%, ensuring relatively stable funding costs

Asset quality continues to improve, aided by moderation in slippages and healthy recoveries, and upgrades. Net NPA ratio thus declined to 0.51%, while PCR improved to 80%. Buoyed by an exemplary performance in 2QFY23, we expect PAT growth of 63%/16% in FY23E/24E respectively, and RoA/RoE of 1.8%/18.1% in FY24E.

The bank’s NIM expanded 36bp QoQ to 3.96%, resulting in NII growth of 31% YoY/10% QoQ (6% beat). Other income grew 4% YoY (inline), as a result of a decrease in treasury losses of INR0.9b from a loss of INR6.7b in 1QFY23. Core fee income grew 20% YoY, of which, retail fee comprises 93%.

Opex grew 14% YoY but was largely flat QoQ as past investments made in the business started to yield benefits. However, tech spending rose 19% YoY and forms 8% of overall OPEX. As a result, C/I and cost-to-assets ratio (annualized) improved to 46.0% and 2.25%, respectively, in 2QFY23.

Axis Bank delivered stellar performance in 2QFY23, driven by sharp margin expansion and a significant decline in provisions along with improving trends in cost metrics. Business growth recovered in the current quarter after a QoQ decline witnessed in 1QFY23. Asset quality continues to improve, aided by moderation in slippages and healthy recoveries, and upgrades. Restructured book moderated further while higher provisioning buffer provides comfort. Buoyed by an exemplary performance in 2QFY23, we revise PAT for FY23E/24E by 17%/11%, respectively. We estimate AXSB to deliver FY24E RoA/RoE of 1.8%/18.1%. We reiterate our Buy rating with a TP of INR975 (2.0x FY24E ABV).

Source:- Motilal Oswal

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