Dalal Street gives thumbs down to Axis Bank post Q2. Should you sell?

NEW DELHI: An 86 per cent surge in Axis Bank‘s September quarter profit beat the Street estimates, but investors were left unhappy as loan growth lagged key peers even as credit growth surprised positively.

The stock plunged 5 per cent to a sub-Rs 800 level in Wednesday’s trade. A modest credit growth remains an irritant, said Emkay Global.

The bank’s 10 per cent credit growth for the quarter lagged peers like ICICI (up 17 per cent), HDFC Bank (up 15 per cent) and Kotak Mahindra Bank (up 15 per cent).

Besides, NII growth was muted at 8 per cent YoY on the back of a subdued margin profile as yields continued to remain low. NIM at 3.39 per cent and high opex also masked certain key positives such as moderation in slippages and low restructurings, said analysts.

Analysts, however, are positive on the stock with price targets suggesting up to 27 per cent potential upside. ICICI Securities has revised its target on the stock to Rs 992 from Rs 942, assigning it a valuation of 2.4 times FY23 book.

“Moderating credit cost trend is encouraging and now growth acceleration coupled with NIM improvement would be critical triggers to deliver superior RoEs,” it said.

The bank expects to see higher traction in loan growth in the second half of FY22, with the retail segment seen growing at higher rates.

Nirmal Bang Institutional Equities said that it has trimmed its loan growth estimates, leading to a cut in earnings estimates.

“Lower growth than peers was disappointing despite the bank having the distribution strength and low cost of funds. We retain BUY on the stock with a target price of Rs 976, based on 2.3 times H1FY24 adjusted book value per share,” it said.

JM Financial sees the stock at Rs 950. Emkay finds it worth Rs 1,020 now compared with Rs 960 earlier.

“We believe the bank has undergone a major transformational journey in the past few years, fortifying the balance sheet, building strong capital/provision buffers and revving up the digital banking platform and even the subsidiaries. However, it will have to deliver on growth/core-profitability to re-rate from hereon,” it said.