Broker's call: Axis Bank (Buy)

BL Chennai Bureau | Updated on: Apr 05, 2022

Emkay Global

Target: ₹1,020

CMP: ₹783.5

Axis Bank has announced the acquisition of Citi Bank's (incl subsidiaries) top-notch retail banking portfolio.

Axis would acquire consumer banking assets to the tune of ₹50,200 crore, including loans worth ₹27,400 crore and liquid assets of ₹22,800 crore, against the liabilities/deposits of ₹50,200 crore (including 81 per cent CASA), making the transaction NAV neutral.

Moreover, Axis will get wealth management, private banking and Insurance distribution businesses. The bank will make an offer to 3,600 Citi Consumer employees to join Axis, which will be essential for a smooth transition and scaling up of the business.

After the deal, Axis Bank's loan/deposit base will increase by just 4 per cent/7 per cent. However, its CASA ratio will improve by 200bps to 47 per cent, leading to some benefit on CoF, partly offset by a higher savings rate of 3 per cent vs. 2.5 per cent offered by Citi. On the asset side, Axis will benefit meaningfully by acquiring the high-value card business, where the bank has been otherwise lagging behind its close peers.

The acquired business is valued as of now at $1.6 billion/₹12,300 crore), lower than the earlier rumoured value of $2-2.5 billion.

Axis will have to deliver on business retention/upscaling and drive cost/revenue synergies after the acquisition, leading to better RoAs and thus justifying high valuations paid for the acquisition.

Published on April 05, 2022
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