Axis Bank - Buy for Long Term
Axis Bank’s balanced growth, superior margin profile and consistency in fee income bring its growth trajectory closest to some of the most successful banks globally. A high provision coverage ratio also makes it a safe play in a poor credit appetite and volatile interest rate scenario. These factors offer substantial upside to the bank’s growth and margins.
- Current Market Price: Rs 1320
- Target: Rs 2300
- Period: In 2 to 3 Yrs
- Returns: 22% annual returns with 3 yrs perspective
The change of management and latest acquisition of Enam’s investment banking business did not, however, impact Axis Bank’s valuations favorably enough. The bank was known to be a conservative entity with a veteran like Mr P. J Nayak overseeing its operations. The all stock deal to acquire Enam’s investment banking business in FY11 therefore raised quite a few eyebrows. Even the RBI had reservations about buying a business with stocks. However, there is very little in the bank’s recent performance, fundamentals or future prospects to suggest that investor returns will be compromised. Even on a conservative basis, we believe that the bank will continue to outperform sector averages. In fact it may compete with its private sector peers in securing the best margins in the sector. We also derive comfort from the fact that Axis Bank has achieved its growth so far with relative conservatism, unlike some of its peers and the same will hold the bank in good stead.
We recommend investors to ‘BUY’ the stock with the target price of Rs 2,300. This will offer average annual returns of 22% (point to point returns of 75%) to investors over a two to three year period.
