Axis Bank up 9% after first-ever loss, analysts welcome a clean book

The stock of Axis Bank gained 8.97%, on Friday, despite reporting its first-ever quarterly loss as investors were enthused by outgoing CEO Shikha Sharma’s declaration that the recognition of bad loans in this cycle is “nearly complete.”

The stock ended the session at Rs 538.90 on the BSE, and was the best performing Sensex stock on Friday.

Axis Bank on Thursday reported a net loss of Rs 2,189 crore for the quarter ended March 31, 2018 after more than doubling provisions, year-on-year, to Rs 7,180 crore. This is Axis Bank’s first quarterly loss since it listed in 1998.

Kotak Institutional Equities in a note to investors said that Axis Bank took an important step to recognise NPLs on a majority of the balance of stress highlighted to investors in the past few years. “As we speak today, we have seen the highest level of slippages. A negative outlook on the book today is not warranted from here. The slippages would decline steeply, in our view, in FY2019-20,” the note said.

The brokerage kept its target price for Axis Bank’s stock Rs 600. “In our view, there is much greater comfort in assigning relatively higher multiples on cleaner book with the potential to return to mid-teen RoEs in the medium term.

Fundamental strengths such as high CASA ratio, distribution network and high and growing share of retail loans are key positives. The principal risk to RoE improvement is a prolonged NPL resolution leading to higher-than-expected credit costs,” the note added.

Edelweiss in its note said though retail continues to strengthen, earnings visibility remains weak. “FY18 performance has rattled investors’ confidence. This, along with uncertainty at top management level will cap valuations in near to medium term,” the note said.

Axis Bank’s stock has declined 4.2% since the beginning of 2018. However, analysts are still bullish on the stock. Out of 52 analysts who track the stock on Bloomberg, 28 have a ‘buy’ rating, 9 have a ‘sell’ rating and 15 have a ‘hold.’

Axis Bank