Business: Domestic brokerage JM Financial has recently raised its target price on shares of Axis Bank, India’s fourth-largest private bank, from ₹1,375 to ₹1,450 per share. This revised price target represents a new record for the stock and, based on Thursday’s closing price, also indicates an upside potential of 17 per cent. The brokerage firm said the bank effectively navigated tight liquidity conditions to support strong net interest income (NII) growth and achieve a compound annual growth rate (CAGR) of 22.7 per cent between FY22 and FY24.
The bank has also built strong provision buffers with a provision coverage ratio (PCR) of 78 per cent for non-performing assets (NPAs) and 1.2 per cent provisions for its non-NPA portfolio. Looking ahead, the brokerage expects operating expenses (opex) growth to moderate to 15.2% CAGR in FY24-26 from 22.1% in FY22-24. This change is expected as the integration of Citi’s operations is taking shape. Borrowing costs are projected to increase marginally to 0.6 per cent in FY25 and FY26.
While the bank benefited from higher interest rates in FY23, it increased its share in repriced deposits between six months and one year in FY24 by 375 and 576 basis points, respectively. This strategic move is aimed at mitigating the impact of potential interest rate cuts in the future on net interest margins (NIM). The bank has maintained a buffer of Rs 50 billion against changes in expected loan loss (ECL) norms, which is part of the total non-NPPA provisions of Rs 117.3 billion, the brokerage firm said.
