Buy Axis Bank - CMP Rs.1403, TP Rs.1650 - 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. Valuations look undemanding at 1.8x 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 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: 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 ~1.8x FY14 book. We have March-14 target of Rs 1,650 per share.

Source : Equity Bulls

Keywords