Citigroup maintains 'Buy' rating on Axis Bank

RESEARCH: CITIGROUP
RATING: BUY
CMP: RS 431

Citigroup maintains 'Buy' rating on Axis Bank with risk-adjusted target price of Rs 470. Citigroup reduces the earnings estimate by 5-13 % over FY09-11 E on the back of: a) Higher loan loss charges, and b) Lower asset and fee income growth.

The stock remains a `Buy’ in spite of the challenges due to its strong franchise, decent returns, modest valuations and high sensitivity to an economic rebound. While Axis’ rapid asset expansion and mid-market profile have sustained concerns on asset quality, management now suggests some of it will show up. If significant - on NPAs and/or restructurings - it could open a Pandora’s Box on how deep the pressure can go. If not, it will still unlikely lift concerns; bottomline, an overhang. Axis is, however, a beneficiary of the currently surplus liquidity - on wholesale deposits (and margins), asset acquisition and its trading portfolio. Its high growth trajectory is also leveraged into the economic cycle.

Economic upswing /revival with easy liquidity could be a significant biz and stock boost. Valuations, franchise and leverage to recovery should offer upsides. There are pressures on asset quality, growth, earnings and management uncertainty , which moderate fundamental and near-term value. But valuations look attractive relative to the franchise and risks are in the headlines, while leverage to economic revival is high
Source: ET