axis: ICICI, Axis is bouncing among analysts’ top banking picks now | Techy Kings

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and, lenders that faced asset quality issues through previous credit upcycles, are among the top investor picks now due to strong loan growth, high net interest margins (NIM) and falling bad loans. , an investor favorite through the last cycle, now faces competition from top-tier private sector peers on asset quality even as some investors remain concerned about founder Uday Kotak’s potential successor in the corner space.

ICICI Bank has consolidated its position as an investor favorite with a 37% year-on-year jump in net profit, led by broad-based loan growth in the quarter ended September. Analysts say banks are well-positioned to take full advantage of rising interest rates.

“With a floating rate book of 70%, the bank is well positioned in a rising interest rate environment…. The bank is seeing a strong recovery in business flows across segments, while asset quality trends remain stable, with industry best. coverage ratios provision of 81%. The additional Covid-19 provision buffer provides further comfort. We expect the bank to deliver a FY24 return on equity of 17.2%,”

said in a note.

Kotak also reported a 27% rise in net profit on loan growth in the consumer banking segment as the Mumbai-based bank ramped up lending after the end of the pandemic. Asset quality also improved with gross non-performing assets falling to 2.08% from 3.19% a year ago.

However, Nomura Securities analysts Nilanjan Karfa and Punit Bahlani said unlike in 2014-15, strong asset quality is no longer considered a USP for banks.

“For Kotak to maintain its valuation, the driver will need to be growth and increasing equity leverage…. At some point in the future, the narrative will likely turn back to strong asset growth as NIM starts to recover. We believe loan growth has likely peaked and NIM is relatively nearing its peak,” the broker said. “Thirdly, changes in management will be a significant catalyst, as we believe the road puts a significant premium on the executive Uday Kotak VC and MD) at the helm, as he has steered the group since the bank’s inception and driven the core narrative. .”

Kotak’s term of service ends in December 2023. He has already led the bank he founded for more than 18 years, which is more than the 15-year limit set by the Reserve

.

For Axis Bank, asset quality is no longer a concern and loan growth is now skewed towards retail and highly rated companies. A 66% increase in consolidated net profit has attracted investors’ attention to the bank. However, analysts have called for some consistency before labeling it a top pick among banks. Axis reported a 35 basis point increase in NIM compared to June 2022.

“We have to see how sustainable this increase in NIM is because it is unusually high to see a sudden increase in NIM … in one quarter… If they can deliver 1.8% return on assets consistently, then one can argue that the current multiple of 1.7 x core P/BV on a FY24E basis could rerate to 2.0x at least in the near term,” said Suresh Ganapathy, analyst, Macquarie Capital Securities.

Santanu Chakrabarti, analyst at

Securities India, says Axis is a ‘smart beta’ option, with attractiveness inversely proportional to the depth and length of the rate hike cycle but with acceptable ‘bear case’ returns.

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