Valuation discount on asset quality concerns seems exaggerated: We
believe the street is assigning discount valuations to AXIS v/s peers, given
the latter's high exposure to SME book (~20%). However, asset quality
trends exhibits much better underwriting standards at the bank as against
the PSUs. Though asset quality concern arising from the relatively
unseasoned power exposure remain, low CDR pipeline and strong asset
quality show in H2FY13, imply limited negative surprise on asset quality in
the near term.
High return ratios to sustain: Axis Bank’s ROAs improved significantly
between FY08-11, driven by improving margins and strong fee income
growth. Though the fee income has shown signs of moderation, we expect
the ROAs to sustain at >1.5% led by stable growth in core income, stable
opex and manageable asset quality.
Valuations: Current valuations are trading at 1.65x FY13 book. Though
restructuring and rating data suggest some inch‐up in asset quality stress,
we believe stress levels are manageable (net slippages of <1 a="a" e="e" have="have" p="p">Sep-13 target of Rs 1,350 per share, implying FY13 P/B of 2.1x.
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