Axis Bank slips despite ‘Buys’ as provisions cast a shadow

Axis Bank shares ended at ‘1,324.2 on Monday. The broader benchmark Nifty 50 was up 0.8% at close.

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Q4 in line with estimates,but West Asia-linked provisions up 56% QoQ

Bloomberg consensus implies an average upside of about 19.5% in the next year, and 94% of analysts covering Axis Bank have a ‘Buy’ rating on the stock, according to Bloomberg data.

“The bank’s results were broadly in line with expectations, with 18% year-on-year loan growth driven primarily by the corporate segment. However, performance was weighed down by elevated provisions linked to the West Asia conflict, which rose sharply, up 56% sequentially and 150% year-on-year, indicating a more cautious stance relative to peers,” said Arijit Malakar, equity research analyst at Ashika Stock Broking.

Among large brokers, Citi, CLSA, HSBC, Jefferies, JP Morgan, Nomura and UBS hiked their targets on the stock post results, while maintaining their positive stance.

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Brokerage Macquarie maintained its ‘Outperform’ rating on the stock, and retained its price target of ‘1,500.

Amid rising geopolitical uncertainty, management has conservatively reallocated most of the tax benefit to strengthening provisions (’20 bn) on an identified pool of standard assets, leading to higher credit costs despite an improving asset quality, as well as reducing slippages, said Suresh Ganapathy of Macquarie in a note to clients.”Thus, we believe credit cost could decline in the coming quarters if the West Asia conflict subsides and provides further cushion to ROA (Return on Assets),” he said.