The recent capital raising initiatives by Axis Bank Ltd. will improve the country's third-largest lender's ability to absorb large reductions in value of distressed assets.
That's according to brokerage IIFL, which upgraded the stock, citing the lender's plans to raise Rs 11,625 crore by issuing shares and warrants on a preferential basis in two tranches. It expects this to boost the bank's capital position by over 200 basis points, aiding the balance sheet clean up.
The brokerage upgraded the stock to ‘Buy' and raised the 12-month target price to Rs 650 apiece, implying a potential upside of over 15 percent from yesterday's close.
Fund raising by way of equity will be a smooth solution to the problem of distressed assets and will also provide an upside to profitability and earnings, IIFL said in a note to clients.
However, it said the lender's earnings will only normalise only by March 2020. Factors such as dilution due to equity issuance and accelerated provisioning will hamper the earnings growth. “We expect earnings to slump by 7.3 percent in the next financial.”
Shares of Axis Bank were trading 0.28 percent higher at Rs 562 on the National Stock Exchange at 10:21 a.m.
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