Buy AXIS Bank of Rs 1250: Emkay Global Financial

Emkay Global Financial's research report on AXIS Bank

Axis Bank has announced completion (earlier than expected) of the acquisition of Citi Bank’s retail banking business at a relatively lower cost, given the run-down in the business since Mar-22. The expensing of acquisition cost (including goodwill) would hurt the 4QFY23 P/L as also the networth (NW) of Axis Bank, but should provide a boost to the bank’s retail assets growth and also be RoE accretive, given the higher leverage. Key takeaways from the call and our view: The overall acquired deposits base has meaningfully reduced by 21% to Rs399bn (77% being CASA) as at end Feb-23 from Rs502bn in Mar-22, mainly due to Citi customers choosing not to port to Axis Bank. Management believes that this could be due to some customers consolidating their banking relationship, while some have moved to other banks. We believe this could be partly owing to some corporate customers, including MNCs, moving their banking relationship (including employee salary accounts). In our view, the interest outgo on Citi’s retained savings-customers would go up, as Axis’s SA rate is higher at 3-3.5% vs Citi’s 2.5%.

Outlook

We believe the higher deposit run-down, coupled with optically higher loss in 4Q, could weigh on the stock performance. However, we remain long-term positive on the stock, given its improving retail orientation/core profitability, healthy provisioning buffer and reasonable valuations. We retain BUY, with revised TP of Rs1,250/share (based on 2x Dec-24E un-merged standalone bank ABV or 2.1x Dec-24E proforma merged standalone bank ABV + subsidiaries’ value at Rs80 per share).