Buy Axis Bank

 Buy rating on Axis Bank is maintained with a target price of Rs.1353 over one year. The stock is currently traded in the range of Rs.850.
 It seems that the correction in the stock is highly unwarranted it continues to be the top pick. During the past one month, the stock price is down 11.9% as against the decline of 8.4% in the Bankex and a drop of 5.9% in the Sensex.
 Stress points exist on the quality of the assets but nothing alarming. Currently, non performing loans (NPL) are sector specific risk rather than bank specific risk.
 For the bank, higher exposure in power and SME segments appear to be the major weakness. In the power sector, bank’s exposure is 5% of total loans as against the industry average of 7%. Delay in loan servicing in some projects may be possible but large scale defaults by power projects are unlikely.
 Bank’s exposure in the SME (small, medium enterprises) segment is higher than that of peer private banks but this is unlikely to spiral under control as the bank has adopted very cautious approach about SME loans.
 Investors are advised to concentrate on positives rather than just negatives as it is basically a sector wide problem.
 On the positive side, the bank’s CASA deposits have consistently been strong and growing. CASA growth has been supported by the increase in branch network. It has increased branch network by 40% during the last two years.
 Axis has one of the most diversified fee based income stream among private sector banks
and it is expected to grow at 20% plus.
 Bank’s net interest margin (NIM) may moderate to 3.4 – 3.5% in 2HFY12 from 3.78% in 1H. However, the drop is only seasonal and not a cause for concern.
 At the current level, the valuation seems very attractive and hence, the ‘buy’ is reiterated with a target price of Rs.1353 over one year.