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Motilal Oswal
Axis Bank (Buy)
CMP: ₹788.95
Target: ₹925
Axis Bank’s (AB) annual report analysis reveals the bank’s focus on improving its earnings metrics and asset quality. As part of its FY20-22 strategy, AB targets an RoE of 18 per cent by FY22, with credit cost, opex and business mix identified as the key drivers for the achievement of this goal.
Digital initiatives at the bank are gaining traction, with 43 per cent of its personal loans sourced digitally versus 22 per cent in FY18. Also, the bank’s market share in credit cards expanded to 12.4 per cent from 5 per cent in FY13, helping it become the fourth largest credit card issuer in the country.
The concentration in top 20 advances/ exposures improved by 171 bps/ 86 bp y-o-y to 8.6 per cent/ 12.4 per cent in FY19. However, on the liability side, the concentration of top-20 depositors increased by 39 bps y-o-y to 11.8 per cent. The bank has shifted its deposit strategy away from CASA to ‘CASA + retail term deposits’.
Though the bank has strong management team and a well-articulated strategy in place the execution is going to be critical to deliver long-term sustainable growth and earnings. NPL cycle has shown improvement signs and we estimate earnings to recover though credit cost trajectory can still remain uneven given sluggish macro.
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