Axis Bank is India’s third largest private bank in terms of loans & profitability.
In the past decade, despite a challenging environment, the company has done remarkably well – 1) with the company’s loan book growing at a faster pace (30%CAGR) than the industry average (19%CAGR) due to its sustained increase in branch network & the bank’s strong corporate relationships, 2) maintained healthy margins of >3% on account of a strong deposit franchise.
Contribution of Retail term deposits and CASA has been relatively stable at 80% which has helped the bank to have better control over its funding cost, particularly in a rising interest rate scenario. With ~64% of the MCLR book linked to 3m/6m MCLR, it has enabled quicker re pricing of the lending portfolio and driven margin expansion.
In the past, there were some concerns regarding the company’s asset quality due to its exposure to certain troubled corporate. Since then they have made continuous efforts to improve their asset quality. The bank’s BB and below rated book that accounts for ~90% of corporate slippage (98% in 3QFY19) has declined from Rs. 8860 crores in Q2FY19 to Rs.7645 crores in Q3 FY19 (1.6% of loans, lowest amongst peers). The bank has made a contingent provision of Rs. 600 crores in Q3FY19 towards any potential slippages from BB & below pool of corporate loan.
With a change in guard, Axis Bank has a 3 pronged growth strategy to achieve its target of 18% RoE by FY22. It is likely that the company will achieve this target on the back of – strong CASA, improvement in asset quality, decline in slippages, and warrant conversion which will aid capitalization levels.
Axis bank had been in a consolidation zone for the past three years now. The stock had been unable to cross the 2015 highs of 655 for the past three years now. In Jan-18 the zone was crossed with a big bull candle. The stock closed at the Fibonacci confluence zone of 719-739. The stock after taking a breather for a month is again making an attempt to cross the 739 levels. A close above the zone on a monthly basis will open the room for 854-865 which is the next Fibonacci confluence zone. The Fibonacci extension taken from three pivot points has nailed the important points on the graph and hence the target at 860 levels is some 16 percent from the current levels. The RSI for the past three years has been unable to cross the 65 levels and has finally done that .Therefore even the momentum indicator is pointing in the favour of the bulls. Hence the dips in the stock should be utilized to buy for a target of 850-865.