Motilal Oswal's research report on Axis Bank
AXSB announced the acquisition of Citibank India's Consumer Banking business for a cash consideration of ~INR123b. The deal includes the Credit Card, Wealth, and Retail Banking operations of both Citibank India and Citicorp Finance. It will acquire loans/deposits worth INR274b/INR509b, including the Credit Card book of INR89b. This will increase its Credit Card book by 57% to INR244b and propel it to among the top three players. Wealth Management AUM will rise ~42% to INR3.8t, making it the third largest player on combined AUM. AXSB will acquire ~3m unique customers, complemented by Citibank's Affluent Customer segment. Post-acquisition, it will have ~28.5m savings accounts, more than 0.23m Burgundy customers, and 10.6m cards. While synergies in terms of cost savings and RoA accretion will take more than two years to accrue, the deal, at 18.7x P/E on CY20 normalized earnings, makes limited economic sense from medium term perspective given the declining revenue profile /cards base of Citi’s business, higher capital charge and high integration cost to be absorbed over the next 2 years. However, over the long term, the success of deal would depend on how well AXSB is able to cross sell its entire bouquet of banking products to Citi customers and also gain from Citi’s well recognized digital and operation processes. CET I ratio is likely to moderate by ~230bp to ~13%, the lowest in the past three years, and may necessitate another capital raise over FY23.
However, the small acquisition size (~4% of loans) will have a limited impact on overall profitability. We maintain our Buy rating, but reduce our TP to INR930/share (2x FY24E P/ABV).
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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