Analysts optimistic on Axis Bank under new CEO’s leadership; Should you invest in stock?

Even when entire market is crumbling for second consecutive day, the share price of Axis Bank has managed to be among top performers on benchmark indices. In two day’s time, the share price of the bank has surged by nearly 5%. Today, the bank jumped by 2% with an intraday high of Rs 665 per piece, however, at around 1451 hours the stock price was trading mostly muted at Rs 652.65 per piece up by 0.17% on BSE. The faith in Axis Bank stock price came after when the bank announced RBI’s approval on appointing Amitabh Chaudhry as the Managing Director & CEO of the Bank for a period of 3 years with effect from January 01, 2019 up to December 31, 2021.

Chaudhry would be Axis Bank’s youngest CEO amongst all new private banks.

RBI approval has ended months of speculation on the top management change at Axis Bank – particularly after the Axis Bank board submitted three names to RBI in Jul-18.

Analysts at Motilal Oswal, “We believe that after three painful years, things are now falling in place and we expect earnings momentum to accelerate over FY18-21E. The net stressed asset for the bank has declined to 6.7% while bank has already improved its coverage ratio to 69% (including technical W.off) and guided for a normalization in credit cost during 2HFY19E.”

According to Motilal, here’s how Axis Bank will perform once the new CEO takes charge.

There has been few changes in top management at Axis Bank and as Chaudhary assumes office, the focus will be on ensuring management stability and alongside delivering business growth.

The business mix and loan growth strategy may also see a change as the new management evaluates the risk-adjusted returns across business segments and look at it in context to long term sustainable growth ambitions and strengths of the bank.

Earlier, there were media reports indicating that Axis Bank may enter into life insurance and now with  Chaudhary taking charge as the CEO, with such a proven track record in building the life insurance business, expectations will naturally be higher.

Considering the above, Motilal said, “With management overhang done away with and improving outlook on fresh slippages/credit cost, we expect earnings to start normalizing 2HFY19 onward. AXSB has already increased the PCR to 69% (NCLT-1 provisions of 83%), which will further curb incremental provisioning requirement.”

Motilal revises target price to Rs 750 (SOTP basis). It said, “ As we roll forward our valuations even as we keep our target multiple unchanged at 2.5x Sep-20E ABV for standalone bank. Maintain Buy.”

Axis Bank’s stock has delivered 23% return in past two months in anticipation of this management change and also aided by the early signs of recovery in NPL cycle.