Axis Bank shares: Is India's third largest private lender headed for 45% upside?
Market analysts remain positive on Axis Bank as India's third largest private lender recently completed the acquisition of Citi Banks' retail banking business for Rs 11,600 crore.
- Mar 8, 2023,
- Updated Mar 8, 2023 8:17 AM IST
Brokerage firms remain positive on Axis Bank as India's third largest private lender recently completed the acquisition of Citi Banks' retail banking business for Rs 11,600 crore. Analysts believe that the acquisition was done earlier than expected and at a relatively lower cost and the lender will not need to raise capital.
Market analysts believe that acquisition expenses, including the goodwill, may hurt the lender's balance sheet in the last quarter of the ongoing fiscal, but this may boost its retail asset growth. However, they remain positive on Axis Bank Ltd in the long run and see a rise of 45 per cent in the stock.
Emkay Global Services believe the higher deposit run-down, coupled with an optically higher loss in 4Q, could weigh on the stock performance. Bank claims that it should be able to fund the acquisition via internal accruals and is not in any hurry to raise capital, it said.
"However, we remain long-term positive on the stock, given its improving retail orientation and core profitability, healthy provisioning buffer and reasonable valuations," it said. Emkay has retained its 'buy' rating on Axis Bank with a target price of Rs 1,250, suggesting an upside of Rs 45 per cent from its previous close at Rs 860 on Monday. The deal includes the credit card, wealth and retail banking operations of both Citibank India and Citicorp Finance. It has acquired loans and deposits worth Rs 27,300 crore and Rs 39,900 crore, including a credit card book of Rs 8,600 crore. Axis Bank credit card book has increased by 42 per cent to Rs 29,200 crore.
While the overall synergies in terms of cost savings will start to accrue from CY24, the bank will take a one-time hit in its 4QFY23 P&L related to the charge-off of goodwill and other intangibles, policy harmonization cost, and implementation expenses. Thus, the CET I ratio is likely to moderate by 177 basis points (bps) to about 13.8 per cent, said Motilal Oswal.
In the long term, the deal’s success would depend on how well it is able to cross-sell its entire bouquet of banking products to Citi customers and gain from Citi’s well-recognised digital and operation processes, it said with a buy rating and a target price of Rs 1,130 on the stock.
The deal was carried out within seven months of approval from the Competition Commission of India (CCI) and is among one of the most complex acquisition transactions in India’s private banking history. However, the deal gives Axis Bank access to a large, affluent and profitable consumer franchise.
Axis Bank completed the acquisition of Citibank India’s consumer business in India, which now elevates the position of the bank to capture premium market share growth, said ICICI Securities. As per management, RoE for Citi business acquisition comes to about 21.7 per cent and hence this business would be RoE accretive, it said.
Even adjusting for the estimated integration cost of Rs 1,500 crore, 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 medium term, it said, maintaining its buy rating and a target price of Rs 1,130 on the stock.
Shares of Axis Bank have dropped about 9 per cent in the year 2023 so far. The stock tested its record highs on January 4, 2023, at Rs 970 apiece. However, the lender is about 30 per cent up in the last one year.
According to Prabhudas Lilladher, which has a target price of Rs 1,100 on lender, immediate benefits of acquisition include the addition of superior quality CC portfolio (coupled with CASA boost of 150bps). "We expect this business to turn profitable by H2FY25E given post-tax integration costs of Rs 15 bn and open optimization would happen only post-integration," it said.
(Views and recommendations given in this section are the analysts' own and do not represent those of Business Today. Please consult your financial adviser before taking any position in the asset/s mentioned.)
Also read: SGX Nifty drops 116 points: Wall Street selloff, hawkish Fed comments, weak Asian markets & more
Brokerage firms remain positive on Axis Bank as India's third largest private lender recently completed the acquisition of Citi Banks' retail banking business for Rs 11,600 crore. Analysts believe that the acquisition was done earlier than expected and at a relatively lower cost and the lender will not need to raise capital.
Market analysts believe that acquisition expenses, including the goodwill, may hurt the lender's balance sheet in the last quarter of the ongoing fiscal, but this may boost its retail asset growth. However, they remain positive on Axis Bank Ltd in the long run and see a rise of 45 per cent in the stock.
Emkay Global Services believe the higher deposit run-down, coupled with an optically higher loss in 4Q, could weigh on the stock performance. Bank claims that it should be able to fund the acquisition via internal accruals and is not in any hurry to raise capital, it said.
"However, we remain long-term positive on the stock, given its improving retail orientation and core profitability, healthy provisioning buffer and reasonable valuations," it said. Emkay has retained its 'buy' rating on Axis Bank with a target price of Rs 1,250, suggesting an upside of Rs 45 per cent from its previous close at Rs 860 on Monday. The deal includes the credit card, wealth and retail banking operations of both Citibank India and Citicorp Finance. It has acquired loans and deposits worth Rs 27,300 crore and Rs 39,900 crore, including a credit card book of Rs 8,600 crore. Axis Bank credit card book has increased by 42 per cent to Rs 29,200 crore.
While the overall synergies in terms of cost savings will start to accrue from CY24, the bank will take a one-time hit in its 4QFY23 P&L related to the charge-off of goodwill and other intangibles, policy harmonization cost, and implementation expenses. Thus, the CET I ratio is likely to moderate by 177 basis points (bps) to about 13.8 per cent, said Motilal Oswal.
In the long term, the deal’s success would depend on how well it is able to cross-sell its entire bouquet of banking products to Citi customers and gain from Citi’s well-recognised digital and operation processes, it said with a buy rating and a target price of Rs 1,130 on the stock.
The deal was carried out within seven months of approval from the Competition Commission of India (CCI) and is among one of the most complex acquisition transactions in India’s private banking history. However, the deal gives Axis Bank access to a large, affluent and profitable consumer franchise.
Axis Bank completed the acquisition of Citibank India’s consumer business in India, which now elevates the position of the bank to capture premium market share growth, said ICICI Securities. As per management, RoE for Citi business acquisition comes to about 21.7 per cent and hence this business would be RoE accretive, it said.
Even adjusting for the estimated integration cost of Rs 1,500 crore, 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 medium term, it said, maintaining its buy rating and a target price of Rs 1,130 on the stock.
Shares of Axis Bank have dropped about 9 per cent in the year 2023 so far. The stock tested its record highs on January 4, 2023, at Rs 970 apiece. However, the lender is about 30 per cent up in the last one year.
According to Prabhudas Lilladher, which has a target price of Rs 1,100 on lender, immediate benefits of acquisition include the addition of superior quality CC portfolio (coupled with CASA boost of 150bps). "We expect this business to turn profitable by H2FY25E given post-tax integration costs of Rs 15 bn and open optimization would happen only post-integration," it said.
(Views and recommendations given in this section are the analysts' own and do not represent those of Business Today. Please consult your financial adviser before taking any position in the asset/s mentioned.)
Also read: SGX Nifty drops 116 points: Wall Street selloff, hawkish Fed comments, weak Asian markets & more