Shares of Axis Bank Ltd. dropped as much as 7.4 percent, the most since January 20, after its second quarter net profit missed estimates and the country’s third-largest private lender raised its FY18 credit cost outlook on asset quality concerns.
Most brokerages cut the target price on the stock but maintained rating on the Mumbai-based lender.
Here’s what brokerages had to say about Axis Bank post Q2 earnings
CLSA
- Stock Rating: Maintain ‘Buy’
- Target Price: Cut to Rs 612 from Rs 620
- Cut estimates on higher provisions for FY18 by 25 percent and FY19-20 by 4-8 percent
- Price target cut due to a lower adjusted book value
- Over half of the slippage arose from the RBI's divergence analysis for FY17
- Management raised credit cost guidance by 40 basis points and sees normalisation from H2FY19
- Management expects recoveries in I.T. accounts but others could take longer
- The key positives were the pickup in loan growth, healthy current account savings account growth and strong growth for subsidiaries
Credit Suisse
- Stock Rating: Maintain ‘Neutral’
- Target Price: Cut to Rs 485 from Rs 506
- Axis reported extremely weak Q2 results
- EPS estimates for FY18 cut by 25 percent on higher provisions
- Loan growth rose after a pick-up in the corporate segment and retail stayed strong
- Expects equity dilution in coming quarters with total stress portfolio at 10 percent and CET-1 less than 11 percent
Bank of America - Merrill Lynch
- Stock Rating: Maintain ‘Buy’
- Target Price: Cut to Rs 590 from Rs 650
- Significant deterioration in asset quality metrics
- Positive trajectory in other key operational parameters
- Cut earnings per share forecasts by 34 percent and 13 percent for FY18 and FY19, respectively, on higher credit cost
Morgan Stanley
- Stock Rating: Maintain ‘Equal-Weight’
- Target Price: Cut to Rs 480 from Rs 550
- Bank's non-performing loan formation unexpectedly surged this quarter
- This surge implies continued uncertainty around the normalisation timeline
- Net interest margin was also under pressure and will likely remain so, impairing earnings
- Earnings estimate cuts reflect higher provisions and lower NIMs, which feeds into a 12 percent cut our price target
- Near-term stock performance will likely be challenging given continued decline in earnings expectations, uncertainty around asset quality, and a potential capital raising
- We expect more pressure as lending rates reprice down
Jefferies
- Stock Rating: Maintain ‘Buy’
- Target Price: Cut to Rs 635 from Rs 375
- The quarter was marred by higher NPL recognition and provisions - driven by RBI divergence and NCLT cases
- the pool of below investment grade exposure is steadily trending down, at 5.9 percent of exposure ex retail
- Management expects credit costs to normalise by H2FY19
- Cut EPS by 9-12 percent across FY18-20 to account for higher provisions
- Expect FY17-20 EPS estimates at CAGR of 49 percent.
- Higher than expected NPA, larger NIM compression and weak retail loan growth are the downside risks
UBS
- Stock Rating: Maintain ‘Neutral’
- Target Price: Unchanged at Rs 575
- NPL uncertainty high; earnings pressure to continue
- Gross NPL formation much higher due to divergence
- Expect return on equity to remain subdued in near term as Gross NPLs would keep provisions high
- Keenly monitoring the impact of RBI’s assessment on banks’ reported Gross NPLs
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