Axis Bank Ltd reported a mixed set of Q2 results but its shares rallied 4 per cent in Friday's trade on strong asset quality trends. The bottom line growth beat Street estimates, thanks mainly to treasury gains and contained capex that offset higher provisions. Analysts noted that the stock’s discount to peers had widened over the past one quarter due to asset quality concerns.
Now with the relief on asset quality front, Nuvama maintained ‘Buy’ on the stock with a target price of Rs 1,335, saying Axis Bank valuations offer downside comfort. While a couple of brokerages suggested 'Buy on the stock, they cut their target prices following the Q2 results. Near-term upside is likely to be limited, they said.
"Despite a 13 per cent beat on PAT, we cut our FY25/26E PAT by 2 per cent/5 per cent on lower loan growth estimate and higher credit costs. We estimate Axis to deliver RoA of 1.65 per cent/1.6 per cent and RoE of 16 per cent/15 per cent for FY25/26E, respectively," said ICICI Securities.
On Friday, Axis Bank shares were trading 4.03 per cent higher at Rs 1,177.75. With this, the stock is up 7 per cent in 2024 so far against 8 per cent rise in the BSE Bankex.
The risk reward on Axis Bank appears favourable with the stock trading at 1.6 times FY26 estimated core banking and less than 11 times its estimated FY26 EPS, CICI Securities said. It suggested a 'Buy' with revised target price of Rs 1,350 against Rs 1,430 earlier.
"Axis Bank beat estimates, largely on account of higher recoveries from written-off accounts and higher MTM gains, offset by soft growth on both sides of the balance sheet, and continued stress in unsecured retail credit. The bank wrote back excess tax provisions owing to a favourable IT order, offset by an increase in prudent provisions," HDFC Institutional Equities said.
While Axis Bank has been leaning towards enhancing the quality of its deposit franchise, the LCR deteriorated to 115 per cent as the bank aligned itself with best practices on LCR reporting.
"The loan-to-deposit ratio stayed elevated at 92 per cent despite modest loan growth (+2 per cent QoQ). We argue that Axis Bank faces a steep balancing act in overcoming its deposit handicap, while also managing growth, given continued elevated stress in unsecured retail segments. We maintain ADD with a revised target of Rs 1,250," it said.
MOFSL, which had earlier downgraded the stock in January, now believes that while the current Axis Bank valuation looks comforting after a significant underperformance, the watchful stance on several key metrics will limit near-term stock performance. It reiterated 'Neutral' with a traget price of Rs 1,225.