Axis Bank Analyst Meet: Investment In Tech, Focus On GPS Strategy Key

Axis Bank Ltd.'s ability to maintain return rations will be the key thing to watch as the private lender's digital capabilities grow and it remains focused on GPS or growth, profitability, sustainability strategy, according to analysts.

Axis Bank management said it is in the process of ramping up "Axis 2.0", a fully digital bank, and has increased its focus on rural and semi-urban markets with its "Bharat banking” strategy, brokerages said citing the lender's analyst meet.

Shares of the bank gained as much as 1.5% in morning trades to Rs 891.8 apiece. Of the 50 analysts tracking the company, 47 maintain 'buy' and three suggest 'hold'. The return potential of the stock implies a upside of 19.2%.

Here's some of the key takeaways from the bank's analyst day:

• Maintains 'buy' rating with a target price of Rs 1,110 per share, implying a potential upside of 26.3%.

• Expect the bank to clock healthy core-profitability CAGR at 25% over FY23-25E on the back of better growth/margin delivery. This coupled with lower LLP given higher specific + contingent provision buffer, should help the bank deliver healthy RoEs.

• Bank's new GPS strategy to focus on delivering sustainably higher returns. Strategy is focused on RAROC-based business growth, building a granular fee profile and digital leadership to achieve sustainable and best-in-class performance.

• Bank has made heavy tech investments over the past few years, to become a digital consumer-lending powerhouse. The bank will continue with its high-end tech investments for driving scale across business verticals, coupled with higher productivity.

• The bank is in no hurry to raise capital before consuming the Citi portfolio acquisition, thereby easing near-term capital-raising concerns.

• Maintains 'buy' rating with a target price of Rs 1,050 per share, implying a potential upside of 19%.

• Axis remains focused on its GPS strategy with an aspiration to reach 18% consol. RoE on a sustainable basis. New customer acquisitions continues to be strong, yielding higher retail disbursements, aided by improved productivity and digitization.

• Has been reporting strong growth in Retail and mid-corporate segment, which along with MSME, would remain the key growth drivers.

• Axis 2.0 to be a key acquisition engine; aids to improve cross-sell and turn-around time.

• Post the completion of the Citi deal, the quality of customers and talent pool of Citi would further add value to the liability franchise of the bank.

• Axis remains focused on building a stronger, consistent, and sustainable franchise. The capital position remains self-sufficient to fund the growth prospects and the bank will assess the capital raise post the completion of Citi deal.

• Asset quality issues are behind, which will keep the slippages and credit cost under control.

• Maintains 'buy' rating, raises target price to Rs 1,120 from Rs 970, implying a potential upside of 27%.

• Bank has built India’s most profitable 'Bharat banking' franchise and guided Citi acquisition on track.

• Management highlighted improvement in three vectors such as NIMs, cost to income ratio and credit cost, resulted in higher consolidated RoA at 1.87% (RoE at 18.9%).

• However, sustainability of return ratios is the key thing to watch going forward. Further liability side franchise to be fixed for strong credit growth.

• Maintains 'buy' at a target price of Rs 1,110, implying a potential upside of 27%.

• With the Citi & Flipkart partnership, it will be among the top credit card platforms and is deepening SME engagement.

• Management is confident about asset quality, growth & ROA; any normalisation in NIMs can be made up via operating efficiency.

• The cost of acquisition for a digital savings account is 40% lower and the bank plans to leverage this to build a lifecycle banking platform.

• Management highlighted that the Citi acquisition might lag the proposed timeline owing to technology integration but will strengthen its position as a leading credit card platform.

• Valuation discount of 40% to ICICI Bank should narrow a bit; capital raise will be watched.

• Maintains 'long' position at a September 2023 target price of Rs 1,180, implying a potential upside of 34%.

• Bank looks to sustain its profitability at current levels as pressure on the cost of deposits will be offset by changing loan mix with higher incremental growth in higher RAROC segments, as well as operating efficiencies driven by recent technology investments.

• Bank has focused on developing API-driven platforms inhouse so as to offer uniqueness in its propositions as well as create an open platform for ecosystem partners to integrate.

• Tech investments have gone up 2.5x in past three years (ex-tech team cost) with an aspiration to become best digital bank globally.

• Maintains 'buy' rating, raises target price to Rs 1,195 from Rs 1,095, implying a potential upside of 36%.

• Heavy tech investments and re-jigged portfolio granularity on both sides of the balance sheet are gradually yielding positive results at the margin.

• While Axis is likely to continue its investment phase, resulting in elevated opex ratios, the bank is incrementally focused on high-yielding profit pools by leveraging its branch network, digital capabilities and partnerships to drive productivity gains.

• Deposit mobilisation is likely to remain a challenge and our forecasts factor in loan/deposit CAGR of 17%/18% over FY22-FY25E due to an untenably high loan-to-deposit ratio (about 90%).

• While we expect near-term RoAs to come off as deposit pricing catches up, we are now relatively more constructive on potential medium-term RoEs for the franchise.

• Sees gradual convergence with ICICI Bank valuation multiples.