ICICI Securities interacted with the senior management of Axis Bank including Mr Amitabh Chaudhry - MD & CEO, Mr. Puneet Sharma – CFO and Mr Rajiv Anand – Wholesale Banking, Executive Director. The management highlighted, contrary to its cautious outlook 6-9 months back, it is now comfortable and positive about better economic recovery. Activity levels, too, are getting back to or better than pre-covid levels. Axis bank is also very well poised to support growth and participate in recovery. However, it remains cognisant that large and stronger players are talking more about growth while weaker and smaller players are getting marginalised. Axis Bank shar price today is Rs 718, down Rs 8 or 1.1%.

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Prudent and conservative path to cushion volatility and deliver superior RoEs was evident from:

1) Not chasing growth - lending to right segments at a right price
2) more focus on RaRoC (Risk-adjusted return on capital) than book growth in corporate banking
3) carrying forward covid buffer and utilising it in extreme contingencies

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Few encouraging strategic initiatives include:

i)   Re-oriented corporate structure and leveraging Axis One platform
ii)   preparing itself for a huge opportunity in government business
iii)  change in mindset and technology-led structural transformation in MSME business
iv)  GIG-A hiring to save incremental costs
v)   graduating from ETB to KTB for wider penetration

As per the current approach, ICICI Securities believes that the bank is set to move towards >15% sustainable RoE in medium term. ICICI Securities Maintained BUY with a revised target price of Rs 953 (now assigning 2.2x FY23E ABV for banking business with improved visibility and Rs 58 per share for subsidiaries; earlier Rs 814.

Axis Bank is not pursuing corporate credit growth at the cost of margins, though in its area of strength it is willing to grab the opportunities coming up at a fair pricing. Instead, Axis is focusing on consolidated offerings to its corporate banking customers including cash management, forex, trade financing etc. It is driving enough non-credit fee and float levers that aid in generating targeted risk adjusted return on capital (RaRoC) that may not necessarily purely flow from mere lending. Following a capital-light model and managing RoRWA, it will actively pursue origin and distribute models. All these factors support sustained growth in pre-provision operating profit in the corporate banking segment despite moderating credit growth.

Axis Bank Key risks:

Higher stress and lower-than-anticipated growth can cap RoE improvement