Axis Bank Shares: Axis Bank rocketed nearly 2 percent to a high of Rs 763.90 in Thursday’s intra-day trading after Axis Bank acquired Citi’s US consumer business in India for Rs 12,325 crore in one of the largest deals in Indian financial services. , in an effort to grow its credit card and retail business and help close the gap with larger peers such as ICICI Bank and HDFC Bank. However, the stock made gains and rose 0.96 percent at Rs 757.65 as of 12:40 PM.
The stock is up 20 percent in the past 17 trading sessions from an intra-day low of Rs 637 reached on March 8, 2022. Over the same period, the BSE benchmark rose by 12.5 percent. Shares of Axis Bank have outperformed so far with a rise of about 10 percent in 2022 (YTD), compared to a 2 percent rise in the Nifty Bank index.
Will the Axis Bank share remain an attractive buy?
CLSA said the Axis Bank Citi deal, which covers loans, credit cards, asset management and retail banking, will be 8-9 percent book-diluting, but also bring in 150 basis points of ROE gain.
It said Citi’s Indian retail business is an attractive business and customer retention will be key there. The foreign brokerage said valuations of the deal are fair and not dilutive while suggesting a target of Rs 1,080 on the stock. The target suggests a potential upside of 44 percent from Wednesday’s closing price.
“Management sees the acquisition break-even in CY24 (almost FY25); this represents limited upside potential so far, with a potential capital increase in 12-15 months. We maintain our Buy rating with a target price of Rs 1,040,” Jefferies said in a note.
Analysts at Prabhudas Lilladher said the deal is structurally positive given its cross-sell potential, but could be PAT neutral post-closing due to likely integration costs. Therefore, we see no material change in FY23/24 profitability. “Customer retention is the key to driving benefits earlier. Axis can take advantage of an upcoming growth cycle as asset quality risk has decreased. Discount to ICICI should decrease and therefore roll to FY24E ABV, we increase multiple from 2.1x to 2.3x and increase TP from Rs 860 to Rs 975. Upgrade from Accumulate to ‘Buy'”, she added.
JPMorgan expects a dilution of earnings per share of about 4-7 percent in FY24, but said the longer-term benefits of the deal are positive. CET1 (common equity tier 1) post-trade will fall to 13 percent, while suggesting a target of Rs 770 on the stock.
Macquarie said that Axis Bank is trading at 1.8 times FY23 price to book value and that it is neutral on the stock with a target of Rs 790.
Under the deal, Axis Bank will pay Rs 12,300 crore in cash, valuing the deal at 19 times 2020 Adjusted PAT of Rs 840 crore for consumer finance. Axis Bank will pay an additional Rs 1,500 crore as integration fees spread over two years from the closing date of the transaction.
The purchase should give a strategic boost to the bank’s retail banking ambitions and otherwise lag behind RoAs in the long run as synergy benefits come in handy, Emkay Global said.
Taking into account the bank’s estimated RoE of 21.7 percent and net worth of Rs 390 crore, the implied P/BV of 4.1 times is not too high for a readily available profitable retail business with a RoA of 1.6 percent said Emkay. “That said, post-acquisition Axis will need to maintain/scale up the business and drive synergies between costs and revenues, leading to better RoAs and thus justifying the high valuations paid for the acquisition,” Emkay said, while he proposed a target of Rs 1,020. on the stock.
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