Our target price for Axis of Rs1,240 is based on a two-stage Gordon Growth model. Key assumptions are: cost of equity of 13%, normalized RoE of 16%, growth during stage-one 15%, and steady state growth 4%. These give us a target multiple of 1.8x 1HFY27E adjusted BVPS (adjusted for net NPA).

Key downside risks to our target price include: 1) greater-than-expected asset quality pressures coupled with tepid loan growth and a weak macroeconomic environment; 2) a sharp slowdown in rapidly growing retail fee income; and 3) a lack of liquidity or deposit growth.

Key upside risks to our target price include: 1) faster resolution of stressed assets and lower-than-expected slippages resulting in lower credit cost; and 2) better-than-expected NIM profile.