Broker's call: Axis Bank (Buy)

CMP: ₹757.35

Target: ₹865

At its Analyst Day 2019, Axis Bank reiterated its three-year strategy of growth, profitability and sustainability (GPS) and elaborated on its aspirations to achieve 18 per cent RoE sustainably.

Key takeaway from various business/segment presentations (detailed later) was a renewed focus on risk-adjusted return on capital (RAROC), cross-sell to existing customer base and greater penetration of the same while ensuring healthy profitability. Management indicated an unwavering focus on risk (credit, operational and reputation) and compliance as new leadership tries to build back the bank’s earlier formidable perception.

We like the management’s strategy of achieving profitable scale across business verticals, playing on the bank’s past strengths while also its priority to stay agile in the ever-changing banking landscape. Management alluded that capital levels were sufficient for the next 12 months and the bank would need to raise capital thereafter. With regards to acquisition of stake in insurance business, a smaller stake looks more likely subject to regulators’ blessings, in our view. While execution remains to be seen, the plan is quite credible and goals achievable, in our view.

The stock has rallied 24 per cent since our upgrade in October 2018 (outperformance of 15 per cent versus Nifty). We maintain our ‘buy’ rating on the stock with a revised target price of ₹865 (core banking business valued at 2.5x FY21E adjusted P/BV).

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