How to make money in stocks: Axis Bank can add whopping 37% returns! Experts call the shots

It is always better to invest in a wonderful stock which is at a fair price, something which equity king Warren Buffett has always advised investors who have an appetite for equities. It also means that one must buy a stock when it is crumbling. Something that fits well for private lender Axis Bank. For investors, the takeaway is that experts have given a buy rating on this lender after the announcement of June 2019 (Q1FY20) quarterly result. At the start of Wednesday’s trading session, investors booked profit in Axis Bank, making it even more cheaper for buyers. In fact, if Axis Bank shares are bought at the current level, then one can get rich going forward as the lender has a potential to rise by a whopping over 37%.

At around 1440 hours, Axis Bank shares was trading at Rs 673.55 per piece down by Rs 33 or 4.61%. The stock has already touched an intraday high and low of Rs 695.35 per piece and Rs 657.65 per piece respectively. Such investors reaction comes despite the bank reporting a strong Q1FY20 result. 

Q1FY20: 

Axis Bank reported a jump of 95.4% in net profit at Rs 1,370 crore from Rs 701.1 crore in the same quarter of last year. The private lender had net profit of Rs 1,505 crore from January to March of 2019 due to improved asset quality.  The bank clocked net interest income of Rs 5,843.65 crore in Q1 FY20, up 13 per cent from Rs 5,167 crore earned in the corresponding quarter of previous fiscal.

The asset quality remained flat sequentially. Gross non-performing assets (GNPAs) stood at Rs 29,405 crore, down 1.2 per cent from Rs 29,789 crore in the March quarter of 2019.The GNPAs, however, fell 10 per cent from Rs 32,662 crore in Q1 FY19.  Thus the GNPA ratio was 5.25 per cent in the recently concluded quarter, down from 6.52 per cent in Q1 FY19 but flat from 5.26 per cent in Q4 FY19.

For GPS 2022, Axis Bank management sees a sustainable and profitable business growth. Till 2022, the lender plans to loan growth of 5% more than industry growth. loan growth of 5% more than industry growth. NIMs range between 3.5% - 3.8%. Also, credit cost of 115 basis points, along with adequate provisioning with target ROE of 18%.

What does experts say:

Rajiv Mehta, Research Analyst along with Amar Ambani Head of  Research at Yes Securities said, “During the quarter, the bank introduced a process of making systematic provisions towards non-fund based facilities in NPA and in stressed accounts outside NPA. This change created a one-time provisioning impact of Rs4.6bn. As of Q1 FY20, Axis Bank held additional provisions of Rs23.6bn towards various risk contingencies, over and above the regular NPA provisions (thus not counted in calculation of PCR).”

The duo added, “Even after factoring the planned equity raise of Rs180bn, we marginally cut earnings estimates for FY20 and FY21 due to a slower traction in NII growth and prevailing uncertainty around credit cost. We believe capital raise, if successful around the current price, will be a positive trigger for the stock as it would significantly strengthen the balance sheet. We expect loan growth to accelerate and the cost ratio and credit cost to fall over FY19-21, thus driving RoA/RoE to 1.4%/14%. Stripping-off the valuation of subsidiaries, the bank trades at 13x P/E and 2x P/ABV on FY21 estimates.” Hence, a buy rating with a target price of Rs 830 has been given on Axis Bank. 

On the other hand, Anand Dama and Shreesh Chandra Research Analyst at Emkay said, “The bank’s domestic credit growth remained healthy at 19% yoy, driven by strong growth in the retail book of 22% yoy, which in turn was driven by the surprisingly continuing strong traction in auto loans and unsecured loans. However, overall growth remains subdued at 13% yoy, dragged by the decline in overseas/corporate book. Deposit growth continued to outpace credit growth, led by high-cost TD growth, leading to a contraction in domestic/global NIMs by 5bps/4bps qoq to 3.4%/3.6%. The bank indicated that management transition is largely done, while its current business transformation journey should yield better growth and return trajectory in the medium- to long run. Axis expects domestic credit growth in FY20 to be 500-600bps higher than the industry, driven by retail, which coupled with a moderation in costs, should support NIMs in H2FY20.”

“ We have cut our FY20/FY21 earnings estimates by 4%/2% and now expect RoA/RoE to be 1.4%/15% for FY21E, factoring in lower loan growth and elongated credit cost normalization cycle given the rise in fresh stress. However, we reiterate our Buy rating with a TP of Rs900 (based on 2.5x FY21E core ABV post capital infusion and subsidiaries valuation of Rs27/share). Key risks to our call include higher NPAs outside the stress pool, slower-thanexpected ramp-up of retail asset/liability and slower RoE trajectory than guided,” said the duo at Emkay. 

Meanwhile, Macquarie in their research note said, “In light of new MD Amitabh Chaudhary’s track record of transparent & honest communication, both at Axis Bank and in previous firms, we are willing to repose our faith in the bank’s disclosures, for now. Monitoring fresh stress formation however assumes importance once again.” Hence, 12-month price target of Rs925 has been set.