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Anand Rathi
Axis Bank (Buy)
CMP: ₹378.35
Target: ₹465
Over FY09-14, granularity of Axis Bank’s deposits has improved, with retail deposits in FY14 comprising 75 per cent of deposits (63 per cent in FY09). The bank’s average current account, savings account (CASA) a branch, at ₹48.8 crore, is the best in the banking sector. Over FY15-16, the bank is likely to open around 250 branches, which could aid CASA mobilisation ahead.
We expect waning perceptions of asset-quality deterioration and weak-earnings momentum as the macro-economic environment revives. Ahead, we expect the stock to trade at a higher-than-past valuation multiple led by likely better-than-past asset quality and capital adequacy. The stock has appreciated 40.5 per cent in the last six months, yet quotes at its five-year mean valuation. Over FY14-16, we expect the return on assets to improve to 1.9 per cent from 1.7 per cent, and the return on equity to 19.3 per cent from 17.4 per cent. The likely improvement in profitability could drive a valuation re-rating. Risk: Weak economic growth could impact credit quality.
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