Axis Bank Stock Posts Worst Fall Of 2016 As Brokerages Cut Price Targets

Axis Bank Stock Posts Worst Fall Of 2016 As Brokerages Cut Price Targets
An Axis Bank branch in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Shares of Axis Bank Ltd., the country's third largest private lender, dropped as much as 8.3 percent to Rs 485, its biggest single-day drop since October 28, 2015, after reporting a sharp spike in bad loans. The stock was also the top loser on the S&P BSE Sensex, the NSE Nifty 50 and the NSE Nifty Bank indices.

The bank's net profit in the September quarter plummeted 83.3 percent to Rs 319.1 crore, the lowest quarterly profit since the three-month period ended December 2007. Adding to the worries of analysts was the management's increase in the slippages guidance from the watch list to “materially” above the 60 percent mark that was originally forecast.

Credit Suisse, UBS, Macquarie and Bank of America-Merrill Lynch have cut their earnings per share estimates for the current financial year by 33-45 percent leading to lower price targets for the Axis Bank stock. However, the brokerages have retained their outlook. In fact, Bank of America-Merrill Lynch had advised a ‘Buy' at the current market price.

Also Read: Axis Bank's Bad Loans Jump Four Times In A Year: A Management Failure?

Credit Suisse

  • Maintains Outperform
  • Cuts price target from Rs 625 to Rs 550 on higher slippage guidance from the watchlist.
  • Overall stress asset (NPL+ watchlist) estimates are unchanged.
  • Raises FY17 credit cost estimate to 315 basis points and cuts FY17E EPS by 45 percent.
  • Builds in a 2.0x multiple to the cleaned-up book.

UBS

  • Maintains Neutral
  • Cuts price target from Rs 600 to Rs 560
  • Hikes FY17 credit cost estimates to 300 basis points on expectation of entire 100 percent of the watchlist turning into bad loans (NPL) during FY17-18 .
  • Cuts FY17E and FY18E EPS by 36 percent and 12 percent respectively.

Macquarie

  • Maintains Neutral
  • Cuts price target from Rs 501 to Rs 475
  • Reduces FY17E and FY18E earnings estimates sharply by 33 percent and 19 percent to factor in elevated credit costs
  • Management's reiteration of reaching 70 percent provision coverage ratio by FY17E indicates credit costs to remain at historically high levels over the next few quarters.
  • The higher non-watchlist slippages of Rs 1,480 crore also worrisome.

Bank of America-Merrill Lynch

  • Reiterates Buy
  • Cuts price target from Rs 675 to Rs 610
  • Upward revision of the FY17 credit cost guidance to 300 basis points versus 125-150 basis points earlier guided.
  • Fresh slippages in the quarter came from steel and textile sectors.
  • Of the slippages of approximately Rs 1,500 crore outside of watch list (versus approximately Rs 1,000 crore QoQ), bulk of it came from corporate account sell-down to an asset reconstruction company.
  • Operating metrics continue to perform well.
  • Cut FY17E and FY18E EPS estimates by ~38 percent and 20 percent respectively to factor in higher credit costs.
  • Expects 2HFY17 earnings to rebound; EPS growth to rebound to approximately 60/45 percent in FY18/19 after approximately 37 percent decline in FY17.
  • Expect the revised high credit cost guidance to be a likely near-term valuation overhang for the bank.
Given that watchlist guidance remains the same and recent stock correction, we see current price as a particularly attractive buying opportunity, especially as we expect 2HFY17/FY18 earnings to rebound led by operating vectors.
Bank of America-Merrill Lynch earnings note.

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