Axis Bank rises 5% despite weak Q4 results

The stock was up 5% to Rs 522 on expectation of sustained ROA expansion over the next 24 months to drive a multiple expansion as asset quality distractions recede.

Shares of Axis Bank were up 5% at Rs 522 per share on the BSE despite the private sector lender reporting its first net loss of Rs 21.8 billion for the quarter ended March 2018 (Q4FY18), as non-performing assets (NPAs) soared and provisions for bad loans surged three times over the corresponding quarter last year.

Most of the local brokerage houses maintain ‘buy’ or ‘accumulate’ rating on the Axis Bank on expectation of sustained return on assets (ROA) expansion over the next 24 months to drive a multiple expansion as asset quality distractions recede.

Axis Bank reported the loss was on account of accelerated stressed asset recognition, precipitated by new RBI guidelines on Resolution of Stressed Assets.

“The bank reported slippages of Rs 165 billion (18.1% of opening loans), leading to elevated income reversals and high loan loss provisions, thereby impacting profits. In FY19ii, Axis Bank plans to recognise residual stress in 1HFY19ii and then proceed to more normalised operations in 2HFY19ii. It also aims to revamp its corporate banking vertical. The accelerated stress recognition and high provisions, thereon, is a positive,” IIFL Institutional Equities said in result review.

“The rebound in return on equity (RoE) would be sharp, but would be contingent on precise execution and a supportive operating environment. At depressed multiples and bottomed-out earnings; the risk reward is highly favourable,” the brokerage firm said with recommend BUY on the stock with 12 month target price of Rs 620.

“The bank has articulated an execution strategy for FY19 that hinges primarily on normalizing credit risk - however, the management commentary suggests a lack of confidence, which is unnerving,” SBICAP Securities said in result review.

Asset quality normalization during 1HFY19 is a key catalyst for the conversation to meaningfully shift to operating vectors such as incremental loan mix shift, well-diversified fee engines and recent-vintage corporate portfolio. As asset quality distractions recede, we expect sustained ROA expansion over the next 24 months to drive a multiple expansion, it added. The brokerage firm maintains ‘buy’ rating on the stock with a revised price target of Rs 730.

Analysts at Emkay Global Financial Services expect Axis Bank to return to earnings normalcy in FY20E with profitability touching 1.1% in RoA terms.

The RoE nevertheless shall remain in low teens. We prefer to value AXSB on 1-year forward P/ABV and assign a multiple of 2.5 times to the same, the brokerage firms said with ‘accumulate’ rating on the stock with 12 month target price of Rs 560.

At 10:50 am; the stock was trading 4.5% higher at Rs 517 on the BSE, as compared to 0.74% rise in the S&P BSE Sensex. The trading volumes on the counter jumped more than three-fold with a combined 26.9 million shares changed hands on the NSE and BSE so far.