Buy Axis Bank - Prabhudas Lilladher

High return ratios: Axis has been generating best in class ROA's at ~1.6% and ROE's at ~19%, underpinned by strong liability and fee income franchise and they have been able to hold on to their liability franchise and have surprised on core fees in 2Q13 with market expecting a disappointment.

Retail build up positive: Over the past 12 months ~50% of the incremental loan growth has come from retail advances, with retail book now constituting 25.7% of the book, as against 20.9% in 2QFY12. We believe that focus towards retail book would provide opportunity to maintain the growth trajectory in a scenario of low loan demand from corporate and is also aiding core fees.

Asset quality to remain manageable: Notwithstanding the risk from some lumpy infra assets, we believe that asset quality and consequent credit costs should remain manageable. 2Q13 credit costs was marginally higher than expected but that included a Rs4bn provision on Deccan, adjusted for which credit costs was much better than street expectations.

Valuations: The bank is currently trading at 1.7x FY14 book as against our target of 1.9x FY13 book implying target price of Rs 1,325 per share.

Source : Equity Bulls

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