We had recommended Axis Bank in Sep’12 at price of Rs. 208 (adjusted for the recent 1:5 split). The current market price is Rs. 417, indicating a total return of 100% since our first recommendation. At this stage, we recommend long term investors to stay invested in the stock. New investors can BUY the stock in the price range of Rs. 350 to Rs. 400 with an 18 months time frame and target price of Rs. 500 - Rs. 600.

Our investment premise in Axis Bank was based on its strong liability franchise, stable asset quality and strong growth potential in the segment. Most of these themes played out in the past two years – asset quality remains stable with GNPAs at 1.3% as on Jun’14 (1.1% on Sep’12) while CASA ratio improved to 43% (41% in Sep’12) despite the tough macro environment. Its retail strategy successfully offset the corporate slowdown over the past two years and franchisee benefits are here to stay.

With the new government at the centre, we expect reforms process in the power & infrastructure sector to pick-up and aid asset quality for banks. Also, they would remain key beneficiaries of declining inflation over the next two years. Axis Bank with its leadership position in corporate as well as the retail segment is well positioned to benefit from this. Valuations at 1.7x FY16e book are attractive.

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