ICICI Securities research report on Axis Bank
Axis Bank shells out a purchase consideration of Rs123bn for Citibank’s India consumer business to acquire: 1) loan portfolio of Rs274bn (accretion of 4% to its advance base) across credit cards, mortgage, personal & ready credit loans, assetbacked finance and small business banking; 2) 2.5mn credit card customer base (addition of 31% to its base); 3) granular deposit base of Rs502bn, of which 81% is CASA (increase of 7% in its deposit base and 12% to its CASA); 4) AUM of Rs1.1trn across Citi’s Wealth & Private Banking products to augment Axis’ Burgundy brand. The implied equity value of Rs158bn (including notional capital allocation of Rs34.5bn) suggests the deal is to be consummated at 18.7x normalised CY20 earnings and 4x book value. Even adjusting for the estimated integration cost of Rs15bn (of which Rs12bn will be paid to Citibank), the deal appears favourable as it gives Axis Bank access to Citibank’s huge retail deposit base, affluent and profitable consumer franchise and strategic synergy benefits over the medium term.
Maintain BUY with an unchanged target price of Rs1,050. Key risks: in the immediate term, it will not be financially accretive and, also, hit on networth (due to goodwill amortisation) and CET1 (due to capital allocation) will make equity raise imminent. Also, retention of an acquired credit card and deposit customer base will be key.
At 13:40 hrs Axis Bank was quoting at Rs 756.95, up Rs 6.75, or 0.90 percent.
It has touched an intraday high of Rs 763.90 and an intraday low of Rs 751.40.
It was trading with volumes of 344,250 shares, compared to its thirty day average of 330,327 shares, an increase of 4.21 percent.
In the previous trading session, the share closed up 1.72 percent or Rs 12.65 at Rs 750.20.
The share touched its 52-week high Rs 866.60 and 52-week low Rs 626.40 on 25 October, 2021 and 12 April, 2021, respectively.
Currently, it is trading 12.65 percent below its 52-week high and 20.84 percent above its 52-week low.
Market capitalisation stands at Rs 232,364.56 crore.
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