Analysts expect Axis Bank's valuation gap with peers to narrow after bullish commentary

Analysts tracking Axis Bank expect the private lender's valuation gap with other lending peers to narrow after the bank's impressive commentary during its analyst day.

Axis Bank, India's 4th largest  private  lender at present , said that it will now be among the top credit card players in the country courtesy to the partnerships with Citi and Flipkart. The bank had agreed to buy Citibank's consumer business in India for over Rs 12,000 crore in cash in March this year. The deal is expected to close by the end of the current financial year.

Additionally, earlier this week, the bank, in partnership with Flipkart launched a Super Elite Credit Card. The credit card will enable Flipkart customers to earn a total of 8 SuperCoins for every Rs 100 spent and a maximum of 200 SuperCoins on every successful transaction. Customers will be charged Rs 500 annually for the same.

On the asset quality front, the bank said that it continues to improves and delinquency levels remains below the peer private bank average within the retail category. The lender's gross and net NPA for the September quarter were the best in seven years. The management also spoke of strong provision buffers to support any form of macroeconomic headwinds.

Brokerages reiterated their buy rating on the bank, expressing confidence that the bank will be able to deliver a stable performance around current levels.

UBS believes that the bank has the building blocks in place to sustain the current financial metrics. They also mentioned that the bank's reiteration of 5-6 percent loan growth target in the medium-term is higher than the industry. The brokerage has a buy rating on the stock with a price target of Rs 1,030. UBS expects the valuation gap with peers to narrow as return ratios sustain at current levels

Jefferies expects Axis Bank to rank among the top credit card platforms within the country and that any normalisation in its net interest margin can be made-up through operational efficiency. The brokerage also has a buy rating on Axis Bank with a price target of Rs 1,110. Jefferies also believes that Axis Bank's 40 percent valuation discount to ICICI Bank should narrow going forward.

Axis Bank's franchise strength is much better than at any point over the last decade, according to JPMorgan. The brokerage believes that their tech investments have become late-stage and should start delivering soon. JPMorgan's overweight rating on Axis Bank comes with a price target of Rs 990.

However, Macquarie has maintained its neutral stance on Axis Bank with a price target of Rs 790, implying a potential downside from current levels. This, despite them mentioning that the management appears to be confident of maintaining its September quarter performance of maintaining Return on Assets (RoA) at 1.8 percent.

Shares of Axis Bank are trading 1.1 percent higher at Rs 888.