Retain 'buy' on Axis Bank – TP hiked to Rs.1659 - Geojit BNP Paribas

- Buy rating on Axis Bank is retained with an increased target price of Rs.1659 as against the earlier target price of Rs.1350. The stock is currently traded in the range of Rs.1425.

- Stable asset quality with improved margins (up 11 bps versus market expectation of 4 bps) remains the main positive takeaways for 3Q.

- Core operating profit growth at 13% lags asset growth of 18%.

- On the back of better than expected margins and trend in asset quality during the current quarter, expected EPS for FY13-15 have been hiked by 3-6% and the target price revised to Rs.1659.

- Asset quality remained stable qoq, which is a key positive of the quarter.

- Therefore, the slippage assumptions have marginally reduced to 1.4% from 1.5% for FY13 and from 1.6% to 1.5% for FY15.

- Management has guided for Rs.900 crore to Rs.1000 crore per quarter addition to slippage and restructured assets put together. The trend is likely to continue in the near term.

- The outlook on Axis bank remains positive because of comfortable valuations and healthy business growth with expected improvement in core operating profitability.

- Net Interest Income (NII) at Rs.2490 crore is in line with market estimates. PAT at Rs.1350 crore is higher than market estimates, largely driven by lower other operating expenses.

- Despite few positives in the quarter, core operating profit still lags balance sheet growth, which has been the area of slight concern as reported profit growth remains high.

- Core operating profit (ex trading gains) improved 12% qoq while assets increased 5.4% qoq.

- Sequentially, asset quality was largely stable with Rs. 3.6 billion of restructuring and Rs.5.5 billion of slippages within guidance on asset quality.

Source : Equity Bulls

Keywords