Axis Bank Stock Hits Record As New CEO’s Appointment Provides Clarity

Shares of Axis Bank Ltd. jumped as much as 5 percent to a record of Rs 677.95 apiece in early trade as brokerages cheered the appointment of Amitabh Chaudhry as the new managing director and chief executive officer of the private lender.

Most analysts expect Chaudhry, who was with HDFC Life since 2010, to help the lender enter the life insurance business, make more use of technology, and change strategy on loan growth. More importantly, analysts said his appointment and clarity on successor removes a big overhang on the stock.

Chaudhry, who will succeed Shikha Sharma, has been appointed for three years, effective Jan. 1, the bank informed exchanges.

Here’s what the brokerages said on Chaudhry’s appointment:

Nomura

• New CEO a positive; operating profitability improvement key to further re-rating.
• A potential asset quality clean-up over the course of the next two-three quarters is a key near-term uncertainty.
• Any large incremental additions to stress book of the bank would be taken negatively.
• Maintain ‘Buy’, with a target price of Rs 630—a downside of 2.4 percent.

Deutsche Bank

• Formal announcement puts to rest any uncertainty around the new MD & CEO.
• Strong candidature of Amitabh Chaudhry should reflect in better valuations despite expected earnings remaining the same.
• Maintain ‘Buy’, raise target to Rs 725—implying an upside of 12.3 percent.

Edelweiss

• While Chaudhry’s appointment is a strong management move, structural re-rating will be driven by asset quality performance, visibility on execution and strategic changes.
• Maintain ‘Hold’, increasing target price to Rs 647—an upside of 0.2 percent.

Motilal Oswal

• Removes a big overhang and focus shall be back on business as usual.
• The business mix and loan growth strategy may see a change.
• Expectations are high of Axis Bank entering the insurance business.
• Believe that after three painful years, things are now falling in place for the bank, expect earnings momentum to accelerate over FY18-21E.
• Retain Buy; raise target price to Rs 750—a potential to rise another 16.2 percent.

Macquarie

• An external candidate was critical for the credibility of the clean-up process and building the right top management team to prevent a repeat of the past.
• Expect the RBI’s mandated top priority for the new MD would be to clean up the books and focus on resolving incumbent stress. Coupled with any potential change in the top management, could see a decision-making vacuum, causing growth to take a back seat for a few quarters.
• Near-term issues aside, the appointment of a credible external candidate has strengthened the case for an eventual re-rating for Axis Bank.
• Maintain ‘Outperform’ and a target price of Rs 615—implying a downside of 4.7 percent.
• Prefer ICICI Bank to play the stressed asset recovery cycle.

Citi Research

• Chaudhry’s appointment increases the probability of Axis Bank getting into life insurance.
• Believe bad loan recoveries for Axis Bank, especially from the power sector, will take some time.
• Any changes implemented by Chaudhry once he assumes charge, will take time to play out.
• Find the stock fairly valued.
• Maintain ‘Neutral’ and target a price of Rs 610— a downside of 5.5 percent.