>AXIS BANK: Strong near term outlook but reducing TP due to high presence in risky segments

The management continues to guide for a credit growth of 1.3x the industry growth rate in the medium term. While the bank’s reported NIMs would come off from 3.8% in Q3FY11, compression of NIMs is likely to be restricted to ~20bps. Fee income growth would likely be in line with asset growth, as the impact of changes in the accounting policy on commissions is already in the base. Asset quality is likely to improve further in the near term, as slippages from restructured assets are expected to decline. Lower loan loss provisions are likely to boost earnings in the coming quarters. However, in the medium term, higher exposure to infrastructure and power sectors remains a concern, as higher losses in SEBs and execution risks in upcoming projects could weigh on valuations. Hence, we are maintaining our estimates and BUY rating on the stock but lowering our valuation multiple to 16x FY12E EPS and 3.1x FY12E BV. Our target price thus stands revised to Rs 1,675 (from Rs 1,800 earlier).

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