Private sector lender Axis Bank was trading around 3 percent down in morning trade after Morgan Stanley downgraded it to “underweight” from “equal weight” and cut its target price on the stock to Rs 800 from Rs 900, citing rising impairments.
Morgan Stanley cited lower EPS in FY14 due to growth slowdown, deteriorating asset quality and weaker capital then peers.
The underlying loan book at Axis appears riskier to us compared to peers – growth has been significant and maturity periods long. Moreover, borrower ratings are declining,” said the brokerage, which expects the bank’s NAPs to rise to 4 percent in FY14. The bank’s NPAs stood at 3.3 percent in the first quarter of the current financial year.
Though the bank may be able to keep the NIMs a decline in corporate fees is seen impacting the core income of the bank.
“At the same time, costs will likely stay high as Axis grows its retail loan book. At a time when credit costs are picking up, this would constrain earnings,” the brokerage said. The bank’s equity Tier 1 of 9.3% is one of the lowest among private banks and leaves no room to reduce, it said.
Axis Bank has declined 12% over the past two weeks, against the 2.8 percent decline in the BSE Sensex.
The brokerage fears that the bank’s that asset quality conditions could deteriorate further in the event of a deep and protracted slowdown and because of its relatively high exposure to the infrastructure segment.
Last month brokerage UBS too downgraded the stock to neutral from ‘buy’, citing increasing quality risks, ‘muted’ earnings growth and a 28 percent share price increase in the lender so far this year.
The brokerage firm slashed its price target on the stock to Rs 1,100 from Rs 1,220.
At 11:26 am, Axis Bank shares were trading down 3.19 percent at Rs 947 while the Sensex was down 0.23 percent at 17397.