ICICI Securities bullish on this bank; sees over 35% upside

Brokerage house ICICI Securities is bullish on private sector lender Axis Bank and has a 'Buy' rating on the stock with a target price of Rs 1,050. It believes that 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.

Recently, Axis Bank and Citibank announced that their respective Boards of Directors have approved the acquisition of Citibank’s consumer businesses in India by Axis Bank. The acquisition is subject to customary closing conditions, including receipt of regulatory approvals.

The stock closed 1.57 per cent higher at Rs 772.60 against the previous close of Rs 760.65. With a market capitalisation of more than Rs 2,37,000 crore, the shares stand higher than 5 day, 20 day, 50 day, 100 day and 200 day moving averages.

ICICI Securities said that it is among one of the biggest deal in the financial industry and transaction of this nature comes in a lifetime. It will help the bank strengthen its market position and reduce the gap with peers in key segments.

"Citi portfolio is overall margin accretive for the bank. The bank has assumed a reasonable attrition assumption while arriving at the valuation. But business will also continue to grow and there would also be revenue synergy," it added.

The transaction comprises the sale of the consumer businesses of Citibank India, which include credit cards, retail banking, wealth management and consumer loans. It also includes the sale of the consumer business of Citi’s non-banking financial company, Citicorp Finance (India) Limited, comprising the asset-backed financing business, which includes commercial vehicle and construction equipment loans, as well as the personal loans portfolio.

Post the acquisition, Axis Bank will have 28.5 million savings accounts, more than 2.3 lakh Burgundy customers and 10.6 million cards. The bank has made large investments in people, processes and technology over the past few years.

"The acquired portfolio would increase Axis Bank’s credit card customer base by ~31 per cent with an additional 2.5 million cards, which will in turn bolster the Cards balance sheet position to be amongst the top 3 players in the Indian market," Axis Bank said in a regulatory filing.

"Moreover, the wealth and private banking portfolio will add great value to the Axis Burgundy business, further accelerating its growth ambitions in that segment. On an overall basis, the proposed transaction will add 7 per cent to the Bank’s deposit base (with ~12 per cent increase in CASA) and 4 per cent increase in advances," it added.