Whalesbook
Axis Bank Stock Poised for 20% Gain as UBS Upgrades to 'Buy' with ₹1,500 Target
Brokerage firm UBS has significantly boosted its outlook for Axis Bank, upgrading its recommendation to 'buy' from 'neutral' and raising the price target to ₹1,500 per share, suggesting a potential upside of around 20%. This marks a substantial increase from the previous target of ₹1,300.
UBS has revised its valuation approach, increasing the target multiple to 1.8 times its financial year 2027 estimated price-to-book value for the core banking operations, up from 1.6 times previously. An additional ₹90 per share is ascribed to its subsidiaries.
The upgrade comes despite Axis Bank facing operating pressures and asset quality challenges in the past, with modest loan growth and relatively high credit costs in the first half of FY26 compared to peers. However, UBS believes these concerns are now gradually subsiding. Supported by a favourable liquidity environment, the brokerage anticipates credit growth to accelerate.
UBS projects Axis Bank's loan growth to be in the range of 14%-15% for FY26 and FY27. Furthermore, it forecasts the bank's return on assets (RoA) to be around 1.7% and return on equity (RoE) to be approximately 15% between FY26 and FY28.
The report highlights that Axis Bank's current valuation discount to its peers remains significant. At 1.5 times its FY27 estimated price-to-book value, the risk-reward profile appears favourable, with UBS noting the lender is better positioned than many public sector or mid-sized banks.
The bank's retail deposit share has improved to about 54%, aligning with industry peers. Its liquidity coverage ratio stood stable at 120% in Q2, which, combined with easing asset quality concerns, is expected to drive loan growth. While near-term margins might be modest due to anticipated rate cuts, UBS expects margins to improve in FY27 through gradual deposit repricing and potential cash reserve ratio (CRR) cuts.
UBS anticipates a gradual improvement in credit costs and slippages, which have historically been higher than peers. The bank's management expects full-year FY26 credit costs to be lower than the first half, indicating a better second half. UBS believes this gradual improvement in key metrics will likely lead to a stock re-rating and a reduction in its valuation discount. Consequently, UBS has raised its FY26-28 Earnings Per Share (EPS) estimates for Axis Bank by 1% to 4%.
Currently, Axis Bank shares are trading slightly lower, but have already gained 17.9% year-to-date.
Impact
This news is highly significant for Axis Bank shareholders and potential investors. A strong buy recommendation with a substantial price target increase from a reputable brokerage like UBS can drive positive investor sentiment, leading to increased buying pressure and potentially a significant rise in the stock price. This could also influence sentiment towards other private banking stocks.
Rating: 8/10
Definitions:
Price Target: The future price level of a stock that a financial analyst or brokerage firm predicts.
Price-to-Book Value (P/B Ratio): A valuation ratio that compares a company's market capitalization to its book value. It is calculated by dividing the total market value of a company by its book value.
Loan Growth: The rate at which a bank's total loans increase over a specific period.
Asset Quality: Refers to the quality of a bank's assets, particularly its loans. Good asset quality means loans are likely to be repaid.
Credit Cost: The cost of credit losses that a bank expects to incur on its loan portfolio. It is usually expressed as a percentage of the total loans.
Slippages: Loans that have deteriorated in quality and are likely to become non-performing assets (NPAs).
Return on Assets (RoA): A profitability ratio that measures how efficiently a company is using its assets to generate profits.
Return on Equity (RoE): A profitability ratio that measures how much profit a company generates with the money shareholders have invested.
Liquidity Coverage Ratio (LCR): A minimum liquidity requirement set by the Basel III accord. It ensures that banks hold sufficient high-quality liquid assets (HQLA) to cover their net cash outflows over a 30-day stress period.
Margins: In banking, this often refers to Net Interest Margin (NIM), the difference between the interest income generated by a bank and the interest it pays out to its lenders (depositors).
Repricing of Deposits: The process of adjusting interest rates offered on existing or new deposits.
Cash Reserve Ratio (CRR): The percentage of a bank's total deposits that it must hold in reserve with the central bank.
Earnings Per Share (EPS): A company's net profit divided by the number of common shares outstanding.