Analyst Corner| Retain ‘accumulate’ on Axis Bank with target price of Rs 845

By: |
Published: March 21, 2019 1:22:50 AM

Axis Bank hosted an analyst day to showcase the path ahead to the goal of higher sustainable ROEs of 18% with key business verticals & subsidiaries articulating detailed strategy.

Analyst Corner: Retain ‘accumulate’ on Axis Bank, TP Rs 845Analyst Corner: Retain ‘accumulate’ on Axis Bank, TP Rs 845

Axis Bank hosted an analyst day to showcase the path ahead to the goal of higher sustainable ROEs of 18% with key business verticals & subsidiaries articulating detailed strategy. Some of the key points were (i) scaling up of certain business segments to move in top tier rank and achieve profitability (ii) sustainable ROEs of 18% by FY22 can be achieved from improving profitability (NII growth), cost optimisation and credit cost below normalized levels and (iii) leverage & cross sell from subsidiary platform.

We believe cross sell propensity remains high and improving processes, structures, origination & underwriting will help improve profitability and help move to sustainable ROEs of 15-16%.

Although, to achieve 18% target ROE on sustainable basis will require strong risk adjusted margins of +3.5% coupled with strong loan growth and much higher cost optimization beyond 2.0% of assets which the bank believes levers are in their sight. We retain ‘accumulate’ rating with revised target price of `845 (from `745) based on rolled over multiple of 2.6x Mar-21 ABV (from 2.5x Sep-20 ABV).

Bank is focusing on increasing scale of certain businesses substantially to reach in top tier categories which will help command profitability.

Certain verticals like DCM, ECM, digital & cards/payments already on leadership position and leveraging relationships has been key area of mindshare.

Going ahead, bank would continue to focus on growing retail assets especially to high yielding segments (moved from 29% to 37% of retail in last 5 years), move share towards mid-corporate/commercial banking and do higher working capital to corporates.

The bank has substantially changed its processes (centralized operations & customer service) and functioning structure with underwriting function away from origination function, while increasing accountability of risk management and compliance functions towards lending. Also as a philosophy, bank will focus on disciplined execution and build much higher conservatism in process & policies which should showcase sustainability in the overall business.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.