Axis Bank shares hit record high, can reach Rs 1,200 mark, says Jefferies. Here's why

At 11.48 am on August 30, Wednesday, the scrip was trading 1.43 percent higher at Rs 994.75 on the NSE. Axis Bank shares have gained 6 percent so far this year and are up nearly 32 percent in the last year.

Technically, the 14-day relative strength index (RSI) of the counter stood at 60.2, indicating it's neither oversold nor overbought. The banking stock has a one-year beta of 1, indicating average volatility during the period. The stock is trading higher than the 5-day, 20-day, 50-day, 100-day, 150-day and 200-day moving averages.

Jefferies hosted the CEO of Axis Bank for investor meetings in the US and released a report based on the discussions.

"One of the key areas of focus for the bank is improvement in funding mix through an increase in the share of retail deposits (term and savings deposits) to be in line with best-in-class peers: Towards this, there is a broader focus on improved customer experience, reorientation of branch staff, focus on corporate salary accounts and digital banking platforms," it said.

This process can take 18-24 months to play out in terms of improved funding mix and lower cost of funds. Over the past year, the rise in the share of retail funds has helped reduce the outflow rate (now in line with larger banks), which has in turn helped grow loans.

According to Jefferies, Axis Bank's management believes that credit growth for banking can sustain around 12-13 percent levels and that the lender can continue to grow at a 4-5 percentage points higher rate (so 16-19 percent).

"The pricing environment in corporate lending has improved, which allows for greater participation for Axis. Capex cycle is seeing some improvement, but banks and promoters (in general) will remain cautious about pushing capex," the brokerage noted.

Jefferies expects the private sector bank to deliver 16 percent compound annual growth rate (CAGR) in profit over FY23-26, with an ROE of 18 percent. "We also believe that most inflation in funding cost has gone through earnings and that improved funding mix can help structurally improve NIM and ROA," it stated.

The global brokerage further pointed out that Axis Bank's valuations at 18 times 12-month forward adjusted PB (price-to-book) is attractive (25 percent discount to ICICI Bank and HDFC Bank) and offers a good entry point.