Hot Stock: JM Financial sees over 37% upside in Axis Bank

MUMBAI: JM Financial has retained its ‘Buy’ rating on Axis Bank on the private bank's strong momentum in its retail business. The brokerage has a target price of Rs 1,750 on the stock, an upside of over 37 per cent from its current market price.

According to the brokerage, Axis Bank is witnessing strong momentum in its retail franchise with credible growth across retail deposits, loans and fee supported by an expanding network.

“Retail deposits have witnessed 30 per cent CAGR (FY11-13) driven by strong branch expansion (added almost 1,000 branches in 3 years). On daily average basis, saving balances saw a robust 31 per cent CAGR in the last 5 years,” the report said.

“Retail loans witnessed robust 44 per cent growth (vs domestic loans growth of 15 per cent) in FY13 and contributed 73 per cent to incremental domestic loans. Retail loans growth was well diversified and its proportion to outstanding loans has gone up to 27.4 per cent (vs 19.5 per cent in FY11). Secured loans accounted for 87 per cent of total retail loans,” it added.

Efforts on the part of management to consolidate its corporate book were clearly visible as domestic large corporate loans remained stagnant in FY13. Share of infra in total exposure has declined marginally by 1 per cent to 18.7 per cent in FY13, non-fund based exposure to total exposure declined by 10 per cent to 23.3 per cent in FY13.

With a balance sheet size of Rs 3,405 billion as on 31st March 2013, Axis Bank is ranked among the top 10 amongst all Indian scheduled banks.

Analysts at JM Financial are of the view that Axis Bank has achieved consistent growth with 5-year CAGR (2008-13) of 25 per cent in total assets and 37 per cent in net profit. However, they expect the business to consolidate after a strong growth period over the last few years.

“While we expect recent momentum in retail business to continue, corporate loans will continue to witness a slowdown. While impairments are relatively high, the trends have remained stable over the past few quarters. We expect Axis Bank to deliver net profit CAGR of 16 per cent (FY13-15E) on assets CAGR of 17 per cent. Profitability would remain healthy with ROA above 1.6 per cent and ROEs of 17 per cent,” the report added.