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Reliance Securities
Axis Bank (Buy)
CMP: ₹714.8
Target: ₹800
Axis Bank’s Q2-FY20 operating metrics were largely in line with our estimates, with NII and PPoP growth of 16 per cent and 45 per cent respectively. The miss in PAT estimates was mainly driven by higher provisions and the one-off impact of DTA markdown of ₹2,140 crore during the quarter, excluding which PAT grew by 157 per cent y-o-y to ₹20.2bn (low base). Despite elevated slippages at 4 per cent of advances, GNPA ratio declined by 22 bps q-o-q aided by higher write-offs.
Domestic loan book grew by a healthy 19 per cent y-o-y, while de-growth in overseas book dragged the overall loan growth to 14 per cent y-o-y. Growth in fee income stood at a modest 12 per cent y-o-y owing to a weaker growth in transaction banking fees at 4 per cent y-o-y. The Bank has been conservatively making contingency provisions towards standard stressed advances over the last few quarters, which stood at ₹2,600 crore as of 2QFY20-end.
Our revised recommendation on the stock to BUY from HOLD is driven by the bank’s improving operating metrics, strengthening asset profile and improved capital position. However, further re-rating will be driven by improvement in the bank’s liability profile and asset quality position.
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