Whalesbook
LKP Research has reaffirmed its BUY recommendation for Axis Bank, setting a ₹1,580 price target. The decision comes after a quarter where the bank showed significant operational strengths and made strategic provisions.
Strong Financial Performance
Axis Bank reported a strong financial quarter, with its loan book growing 18% year-over-year. The bank's Gross Non-Performing Asset (GNPA) ratio improved to 1.23%, its lowest in a decade. Slippages also fell, indicating better management of asset quality.
Building Resilience with Provisions
To strengthen its resilience, the bank accumulated ₹155 billion in standard asset provisions, equal to 1.26% of its standard advances. This buffer includes ₹20 billion set aside for loans exposed to West Asia, intended to absorb potential losses even under severe downside scenarios for FY27.
Margin Dynamics and Outlook
Net Interest Margins (NIMs) faced pressure, mainly because about 61% of advances are linked to the repo rate and thus sensitive to interest rate changes. However, LKP Research believes most interest rate cut impacts have already been absorbed. The firm anticipates future margin stability driven by deposit repricing.
Future Growth and Valuation
LKP Research is confident Axis Bank can reach a Return on Assets (RoA) of 1.7% and a Return on Equity (RoE) of 15.1% by FY28. This forecast relies on continued loan growth, improved operational efficiency, and managed credit costs, bolstered by the current provision buffer. LKP Research values the bank at 1.8 times its estimated FY28 Book Value Per Share (BVPS).