Global brokerage firm Nomura has expressed bullish sentiment towards Axis Bank, issuing a ‘buy’ call on the stock. Nomura’s analysis suggests an attractive valuation, prompting them to set a target price of Rs 1,250 per share. This target implies a potential upside of over 20% from the current level of Rs 1,034.
Despite facing a year-to-date decline of over 5%, Axis Bank has demonstrated resilience compared to the broader market, with its shares outperforming the Bank Nifty index, which experienced a 4% drop. Notably, Axis Bank’s stock reached a 52-week high of Rs 1,151 per share on December 5, 2023, indicating its strong performance and potential for future growth.
According to analysts at Nomura, Axis Bank is anticipated to deliver robust returns, with healthy return on assets (RoAs) or return on equity (RoE) projected at 1.7 percent or 18 percent, respectively. Moreover, Nomura expects a strong earnings per share (EPS) compound annual growth rate (CAGR) of 16 percent over the period from FY24 to FY26.
Despite the possibility of a moderation in loan growth, Nomura remains optimistic about Axis Bank’s prospects, emphasizing its continued strong compounding of book value. The brokerage firm reaffirms its positive stance on the bank, highlighting the resilience and strength of its franchise.
The management of Axis Bank has signaled an anticipated improvement in net interest margins (NIMs), attributing it to several strategic measures. These include efforts to enhance the balance sheet mix, reduce the overseas loan book, diminish exposure to low-yielding RIDF bonds, and fortify its retail deposit franchise.
Analysts noted that Axis Bank’s focus on maintaining benign credit costs over the past eight quarters has been pivotal. This approach has not only facilitated the bank in directing investments towards bolstering its digital capabilities but has also enabled capacity building initiatives to further strengthen its position in the market.
Despite its positive trajectory, analysts have underscored that deposit mobilization poses a significant challenge for Axis Bank moving forward. With a focus on navigating a tight liquidity environment, the bank aims to strike a balance between growth and profitability.
Analysts anticipate Axis Bank’s deposits and loans to exhibit a compound annual growth rate (CAGR) of 15.5 percent and 15 percent, respectively, over the period from FY24 to FY26. This projection reflects the bank’s strategic efforts to maintain sustainable growth while ensuring profitability amidst prevailing market conditions.
Sources: moneycontrol.com
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