Axis Bank ended the fiscal year 2017 on a bright note yesterday by reporting better than expected Q4 results which indicated a turn of fortunes for India’s third largest private lender. Axis Bank saw both its gross and net non-performing assets (NPAs) decline as a percentage of its total loan book. Its gross NPA ratio dipped to 5.04%, while the net ratio fell to 2.11%.
“After witnessing a deterioration in asset quality for the past few quarters, the bank has started showing some sign of improvement. Though in absolute numbers the slippages still remained high, the comforting factor is that nearly 74% of the total slippages came from the watch list,” said Siddharth Purohit, senior banking analyst, Angel Broking Ltd.
But is Axis Bank completely out of the woods yet? In the words of the management itself, concluding that Q4’s relatively better numbers may be a sign of better future earnings would not be apt at this moment.“The worst appears to be behind us but there are challenging times ahead,” Jairam Sridharan, Chief Financial Officer, Axis Bank, said in a conference call.
Today even after a positive start, shares of the company failed to hold on to the momentum and later fell 2.64 per cent to Rs 503.60 on BSE and 2.68 per cent to Rs 503.25 on NSE.
Here are some brokerage houses’ ratings and targets for Axis Bank after yesterday’s results:
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Global brokerage firm JP Morgan maintained an ‘outperform’ rating on Axis Bank while raising its target price to Rs 570 from the earlier Rs 550.
“A bearish guidance on net interest margins and credit costs for FY18 drove significant earnings cuts. We continue to see value, and a turn in the tide on earnings and asset quality but at a slower pace. We would advise patience, as asset quality overhang could be a drag in the near-term,” JP Morgan said.
Morgan Stanley maintained ‘equal-weight’ rating on Axis Bank however lowered FY18 estimated EPS by 10 per cent on account of pressure on near-term earnings. It maintained its target price of Rs 550.
“Stabilising NPL formation, albeit at high levels, could help the stock in the near term,” Morgan Stanley said.
UBS maintained a ‘neutral’ rating on Axis Bank with a target price of Rs 575. UBS believes that the stock has a strong franchise and is more than halfway through the NPL cycle. The global brokerage firm sees limited upside in the stock due to valuation and pressure on near-term earnings. It sees the bank’s return on equity (RoE) at 11.5 per cent in FY18 and 15.5 per cent in FY19.
Bank of America-Merril Lynch
BofA-ML maintained a ‘buy’ rating on the stock and raised its target price to Rs 600 from Rs 549 earlier. The brokerage estimates an earnings growth of 72 per cent for 2017-18 and 56 per cent for 2018-19.
Another global brokerage firm CLSA too maintained an ‘outperform’ rating on Axis Bank and it too raised its target price to Rs 570 from the earlier Rs 550.
“With normalisation of business and asset quality, we expect profit to improve from FY18 onwards,” CLSA said.