Target: ₹1,470

CMP: ₹1,279.75

We see Axis Bank emerging stronger in this leg of the upcycle led by a structural improvement in the franchise. Sustained earnings progression and NIMs & CET-1 gap gradually narrowing with its core peer is expected to result in improvement in valuation multiples. The bank is delivering higher risk-adjusted returns over cycles with lower growth in risk-weighted assets (RWA).

The bank has also made steady progress in granularising deposits, as is evident from a 5 per cent reduction in deposit outflows in the last two years to 23.9 per cent as per LCR. Peak NIM contraction cycle is probably behind along with stable asset quality trends is likely to keep credit cost lower than long-term averages resulting in healthy profitability/ return ratios which would also allow bank to invest in future and it would continue to do so as long as environment remains favorable.

Loan growth could be lower and expected to converge with deposit growth if deposit mobilisation challenges persist in the near term. However, the bank is confident of growing over 300-400 bps higher than industry over medium to long term. Near-term catalyst remains equity capital raising however the bank has indicated that it would raise capital based on business requirements.

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