Strong successor taking up the top job could improve Axis Bank fortunes

Execution key to sustain valuations for Axis Bank

The Street gave thumbs up to the stock of Axis Bank, India's third-largest private sector bank, following its announcement that Amitabh Chaudhry would succeed Shikha Sharma as its head. In fact, Axis was the only one among frontline banking stocks to end in the green, with a gain of one per cent on a day when the broader indices shed over 1.2 per cent.  

Analysts say Chaudhry's entry comes at the right time. Much of the balance sheet cleansing was done in the past three financial years, and the stage is set for an accelerated growth - thanks to the mega capital infusion last year. "Things are now falling in place, and we expect earnings momentum to accelerate over FY18-21," analysts at Motilal Oswal Financial Services wrote in a note.

Analysts at IDFC Securities say Axis Bank will now have the leadership to reclaim its lost market position. Faith on Chaudhry largely emerges from his diversified background, the most prominent being his successful stint in the insurance sector as risk management is the critical aspect in banking.

"We would describe Chaudhry as a turnaround expert. He did not have an insurance background when he joined HDFC Life in January 2010, but innovated a whole new segment of credit protection. We believe the bank needs a CEO like him to tighten processes, enhance its brand equity and move on to the next stage of growth," says an analyst at IDFC Securities.

What adds to the stature of Chaudhry is the strong performance of HDFC Standard Life on the bourses. 

HDFC Life is easily the most successful listings in recent times. Interestingly, life insurance is a key missing part for Axis Bank. Analysts at Edelweiss believe it will be worth watching how the partnership of Axis Bank with Max Life shapes up. "Chaudhry will be best positioned to evaluate the strategic benefit of the tie-up," they say.

Yet, not all may be rosy for the new man from Day One. Adarsh Parasrampuria of Nomura cautions that the key near-term uncertainty clouds a potential asset quality clean-up over the next two-three quarters. History indicates that slippages and bad loans tend to be elevated for a few quarters with a new CEO taking charge, State Bank of India being the recent example. "Any large incremental additions to the stress book of the bank would be taken negatively," Parasrampuria says. With leadership issues settled, March-quarter results, once Chaudhry assumes office, will be closely monitored.  Trading at over 2.5 times its FY20 book value, delivering the goods holds the key for the stock to justify valuations.