Axis Bank share price soars 8%; brokerages see this much upside as moratorium value falls

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Published: July 22, 2020 12:13 PM

Axis Bank share price surged 8% on Wednesday morning, a day after the private sector lender reported its April-June quarter numbers.

Axis Bank june quarter result, Axis Bank Net Profit in Q1, Axis bank Q1 resultThe lender saw net interest income grow 20% to Rs 6,985 crore and provisions too increased to Rs 4,400 crore as the bank geared up to face any near-term headwinds.

Axis Bank share price surged 8% on Wednesday morning, a day after the private sector lender reported its April-June quarter numbers. Although net profit was down 18.82% from the previous year to Rs 1,112 crore brokerage firms are still bullish on the stock as moratorium accounts, in terms of value, dropped significantly in the June quarter. The lender saw net interest income grow 20% to Rs 6,985 crore and provisions too increased to Rs 4,400 crore as the bank geared up to face any near-term headwinds. The stock touched an intraday high of Rs 482 per share on Wednesday even though stock markets were largely trading flat. 

Moratorium value dropped from being at around 25%-28% at the end of the previous quarter to 9.7% of the total loans at the end of the April-June quarter. “This sharp drop is encouraging but odd. As per the management, borrowers representing 90% of the second moratorium formed part of the first moratorium, and 70-80% of the borrowers who had availed of the first one paid in June,” said HDFC Securities in a note. The brokerage firm has a BUY call on the stock with a target price of Rs 565 apiece. “We have slightly reduced our earnings estimates, as we build slower loan growth, lower NIMs, and slightly higher provisions,” the note added.

Although Axis Bank saw other incomes decline, largely led by a 38% on-year drop in fee income, it was offset by the cut back in operational expenditure. Loan growth was recorded at 13% from the previous year, as growth in retail loans moderated sharply to 16%. Deposits grew 16% on-year, led by 27% growth in retail time deposits. Analysts at Motilal Oswal said that the bank adopted conservative accounting policies and further strengthened the balance sheet by making additional provisions. “ The sharp decline in the moratorium book eases concerns on asset quality/capital erosion – similar to the loss that the bank reported in 4QFY20 – bringing back focus on potential earnings/credit cost trajectory,” the brokerage firm said in a note while maintaining a BUY call on the scrip with a target price of Rs 600.

Slippages during the June quarter were at Rs 2,200 crore, of which Rs 2,000 crore were from loan book and rest from investment book. “The decline in the moratorium number is a great data point to cherish about but we are not convinced enough to change our credit cost / slippage assumption based on it,” said brokerage firm Phillip Capital. With a neutral outlook, Phillip Capital is expecting Axis Bank shares to scale up 10% with a target price of Rs 490.

Holding a contrarian view on Axis Bank was Edelweiss Securities. In a note, the brokerage firm said that Core operating profit of the bank was low. “Profitability was impacted by a change in accounting policies, leading to lower NIM, lower fee, and higher provisions,” Edelweiss said. The drop in moratorium, Edelweiss highlighted, was aided by the bank’s choice to pursue collections on some overdue assets rather than ‘freeze’ them all in moratorium. Collection efficiency towards accounts which have been denied moratorium is a key parameter to keep an eye on, said Edelweiss with a HOLD rating on Axis Bank shares.

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