Jefferies expects big rally in Axis Bank shares, valuation gap with ICICI Bank will narrow

 

• In a note on Axis Bank, Jefferies said ICICI Bank should slightly reduce the valuation discount of 40%

Axis Bank at its Analyst Day emphasized that investments in digital platforms are helping engage with customers across the life-cycle, thereby promoting cross-sell. With Citi and Flipkart partnering, it will be one of the top credit card platforms and is deepening SME engagement, highlighted global brokerage Jefferies in a note.

“The lender's management is confident about the asset quality, growth and ROA; Any normalization in Net Interest Margin (NIM) can be met through operating efficiency. ICICI Bank should reduce its valuation discount of 40% a bit; Capital raising will be monitored," the note said.

Jefferies has maintained a buy rating on Axis Bank shares with a target price of ₹1,110 per share. It believes that the SME book is at risk, but the initiative to de-risk the book is encouraging. Also, reforms in deposit franchise will help in growth/derisking.

Besides, cost controls and deposit rate cuts should support earnings and asset quality concerns are largely offset in Jefferies' view, and macro recovery could drive a re-rating for the private bank.

Axis Bank's management was confident of continued growth (around the high teens) and also believes that even if ROAs remain near current levels, any normalization in margins can be made up through a range of operational synergies .

Analysts said Axis Bank has unveiled its growth, profitability and sustainability strategy, focusing on RAROC-led business growth, building a granular fee profile and digital leadership to achieve sustainable performance .

Apart from retail, the MSME and mid corporate segments will be the key growth engines providing higher RAROC, while granular fee income (67% retail in H1) and some improvement in its otherwise investment driven, high cost structure (2 back to normal set) is likely to drive-up RoA/RoE in the long term, according to brokerage house MK.

“We expect the bank to clock a healthy core-profitability CAGR of 25% over FY23-25E on the back of better growth/margin delivery, higher specific + contingency provisioning buffer coupled with lower LLP, giving it a healthy RoE (16) There should be help in giving. -17% by FY24-25E without factoring-in capital raise)," the brokerage said while retaining its BUY rating on the bank stock with a target price of ₹1,110 per share.