Axis Bank Slumps As Profit Miss, Credit-Cost View Raised

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