Among banking space, HDFC Bank tops the list with a market cap of Rs 8.97 trillion, followed by ICICI Bank (Rs 6.57 trillion), State Bank of India (SBI) (Rs 5.24 trillion) and Kotak Mahindra Bank (Rs 3.87 trillion).
In past one week, Axis Bank has outperformed the market by gaining 7 per cent, as compared to 0.34 per cent rise in the S&P BSE Sensex. HDFC Bank and ICICI Bank were down 1 per cent, while SBI and Kotak Mahindra Bank were up less than 1 per cent during this period.
Axis Bank is the third largest private sector bank in India with a balance sheet size of Rs 13.17 trillion as on March 2023. The bank acquired Citi consumer banking portfolio effective March 2023 for Rs 11,600 crore wherein around Rs 27,000 crore of retail assets and Rs 40,000 crore of liabilities have come on Axis Bank’s books. Accordingly, exceptional provision of Rs 12,489 crore was made in Q4FY23 P&L account.
After a sharp dip in RoA to a low of 0.8 per cent due to the hit on Citi’s portfolio acquisition in FY23, analysts at Emkay Global Financial Services expect the bank to report 1.8% RoA/18% RoE (inflated due to Citi’s acquisition goodwill w-off) on a merged basis (without factoring any equity dilution) over FY24-26E, owing to better growth/moderation in operational cost. The brokerage firm retains its BUY rating on the stock with a target price of Rs 1,225, valuing the bank at 2x its FY25E ABV
With strong growth coupled with guidance of 4-6 per cent above industry and stable margins, analysts at ICICI Securities believe earnings growth should remain robust at 20 per cent CAGR over the next two years. RoA to sustain around 1.9-2 per cent and strong capital position offer comfort on valuations as at 1.5x FY25E ABV, the brokerage firm said in March quarter result update.
Given comfort on the strength of Axis Bank’s balance sheet and liability franchise as well as reasonable valuations (1.9x FY24E P/B), Axis Bank remains our ‘smart-beta’ BUY and among our top-3 sector picks, analyst at BNP Paribas said.
“On growth, management seemed confident of delivering 400-600 bps above system-loan growth in the medium term. Axis Bank expects cost of funds to catch up from Q1FY24, which should lead to some margin pressures. Management highlighted loan mix shift, reduced PSL compliance strain and liquidity reduction as key margin defences. On the Citi integration, management expressed enthusiasm and indicated that initial client feedback has been positive,” the brokerage firm said in result update.