Axis Bank shares get an upgrade, new target price implies 20% upside — Should you buy?

Shares of Axis Bank Ltd. can gain 20% as per brokerage firm UBS, which upgraded its recommendation on the stock and increased its price target by over 15%.

UBS now has a "buy" rating on Axis Bank from its previous "neutral" recommendation and the brokerage has increased its price target on the private lender from ₹1,300 per share to ₹1,500 apiece.

The brokerage has increased Axis Bank's target multiple to 1.8 times its financial year 2027 estimated price-to-book value for the core bank from 1.6 times earlier, along with ₹90 per share ascribed to its subsidiaries.

It said the key downside risks for the lender are lower loan growth and deterioration in asset quality.

Credit cost in gradual decline

The brokerage said Axis Bank has been facing operating pressure due to a difficult operating environment and asset quality challenges. Its loan growth in the first half of FY26 was modest, while credit cost and slippages were relatively high compared to its peers.

UBS believes these concerns are gradually abating, and coupled with a favourable liquidity environment, could drive credit growth.

The brokerage expects Axis Bank's loan growth to be between 14% - 15% for financial year 2026 and 2027, its return on assets (RoA) and return on equity (RoE) are likely to be at 1.7% and 15%, respectively, over financial year 2026-2028.

Axis Bank's valuation discount to peers remains high and at 1.5 times its price-to-book value estimate for FY27, the risk-reward appears favourable, UBS said, who added that the lender is better placed than other PSU or mid-sized lenders.

Support To Loan Growth

Axis Bank's share of retail deposits has gradually improved to around 54%, which is in-line with peers, UBS said. The liquidity coverage ratio remained stable at 120% in the second quarter, which, coupled with gradual easing in asset quality, will likely drive loan growth, UBS said.

While the near-term margins might remain modest as it builds in a further 25 bps rate cut in 2025, UBS said it thinks gradual repricing of deposits along with cash reserve ratio (CRR) cuts will drive margins over FY27.

Credit cost and slippages for Axis Bank are already higher than its peers, but UBS said it expects a gradual improvement.

Valuation reasonable

The brokerage said Axis Bank's management expects the full-year FY26 credit costs to be lower than the first half of FY26 levels, which implies that the second half could be significantly better.

UBS said it believes a gradual improvement in key metrics is likely to drive a re-rating for the stock and narrow the valuation discount. It has raised its FY26-28 Earnings Per Share (EPS) estimates for Axis Bank by 1% to 4%.

Axis Bank shares were trading 0.2% lower at ₹1,263.1 apiece around 12.10 pm on Wednesday. The stock has gained 17.9% this year, so far.

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