Axis Bank Faces Slew Of Price Target Cuts After Q3 Earnings Letdown

Axis Bank is facing a barrage of price target cuts by brokerage houses after the country’s third largest private sector lender reported a disappointing set of earnings mainly on account of weak operating performance and asset quality concerns.

Higher credit costs have led Goldman Sachs and CLSA to trim their FY17-19 earnings estimates by 6-18 percent.

Net profit for the three-months ended December 31 fell 73 percent to Rs 580 crore from a year earlier, the Mumbai-based lender said on Thursday in an exchange filing. That missed the Rs 830 crore average of 22 analyst estimates compiled by Bloomberg. However, the bigger concern for the lender is the spurt in slippages from outside its watch list. In the third quarter, net slippages outside the watch list stood at Rs 1,631 crore, most of which were corporate loans.

The bank led by Shikha Sharma saw a slowdown in loan growth post demonetisation (10 percent Y-o-Y growth in Q3) even as peers like IndusInd Bank and Yes Bank managed to remain unscathed from the note ban with robust loan growth.

Key Takeaways From Brokerages’ Earnings Notes On Axis Bank

Goldman Sachs

• Retains Sell/Neutral; lowers price target from Rs 402 to Rs 380
• Higher slippages from non-watch list raises concerns on the sanctity of the watch-list accounts and may create uncertainty on the provisions trajectory.
• Axis Bank saw weaker business trends post demonetisation.
• Cuts FY17E-19E earnings per share (EPS) by 6-12 percent to account for weak Q3FY17 numbers.
• Current valuations of 15.3 times FY18E price to earnings (P/E) indicates skewed risk-reward.

J.P. Morgan

• Retains Overweight; price target at Rs 550
• Management commentary around corporate loan growth remained weak.
• Opex growth at 23 percent reflected some one-time costs due to demonetisation, but management was unable to quantify the impact.
• Reduces loan growth estimate in FY17 to 14 percent and earnings per share estimate for FY18 by 1.2 percent; higher treasury gains should offset lower net interest income (NII).
• Re-rating potential as Axis nears the end of the NPL cycle.
• ROEs bouncing back to 17 percent for FY18 from 8 percent in FY17.

Jefferies

• Retains Buy; lowers target price from Rs 570 to Rs 550.
• Says near-term outlook looks clouded.
• Demonetisation negatively impacted the already weaker credit growth, leading management to indicate that FY17 credit growth would be lower than earlier guidance of 18-20 percent growth.
• Expects stock may remain subdued, but advises advises to buy into the weakness for a slow recovery through FY18.

CLSA

• Maintains Outperform rating and target price of Rs 550
• Asset quality pressure has moderated from the highs of Q2FY17, but still stressed loans at 9 percent of loans is still high vs past averages.
• Encouraged by the bank’s initiative to improve the bad loan (NPL) coverage ratio (up +300 basis points Q-o-Q to 59 percent).
• Lowers earnings estimates for FY17-19 by 14-18 percent to account for higher credit costs.
• Expects earnings to decline in FY17 and normalise thereafter.

Shares of Axis Bank were the biggest loser on the Nifty50 index, falling as much as 6.44 percent to Rs 462.65, its biggest fall since November 09, 2016 .