Buy Axis Bank - Target Price Rs. 1650 - Prabhudas Lilladher

High return ratios: Axis has been generating best in class ROAs at ~1.6% and ROEs at ~19%, underpinned by strong liability and fee income franchise. Valuations look undemanding at 1.7x FY14 book, especially considering post dilution ROEs of +17.5% in FY14-15.

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 26.8% of the book, as against 20.9% in Q2FY12. 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: We believe asset quality stability over the last 2-3 quarters would have addressed some investor concerns. Gross NPA + Restructured book accretion of Rs9bn was lower than management guidance of Rs10-11bn quarterly slippage. Management expects slippages to be contained at similar levels and have maintained their near-term credit cost guidance of ~90bps.

Valuations: The bank is currently trading at ~2.0x FY14 book. We have March-14 target of of Rs 1,650 per share.

Source : Equity Bulls

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