Axis Bank Shares: Axis Bank spurted nearly 2 per cent to a high of Rs 763.90 in Thursday’s intra-day trade on the back of Axis Bank acquiring US-based Citi’s consumer business in India for Rs 12,325 crore in one of the largest deals in the Indian financial services space, in a bid to bulk up its credit card and retail businesses, and help close the gap with larger peers like ICICI Bank and HDFC Bank. The stock, however, pared gains and was up 0.96 per cent at Rs 757.65 as of 12:40 PM.
The stock has gained 20 per cent in the last 17 trading sessions from an intra-day low of Rs 637 touched on March 08, 2022. During the same period, the BSE benchmark has appreciated by 12.5 per cent. Shares of Axis Bank have outperformed by rising about 10 per cent in 2022 (YTD) so far as compared to a 2 per cent rise in Nifty Bank index.
Does the Axis Bank Stock Remain an Attractive Buy?
CLSA said the Axis Bank Citi deal, which covers loans, credit cards, wealth management and retail banking, will be 8-9 per cent book dilutive but would also be 150-basis points ROE accretive.
It said Citi’s India retail is an attractive business and that customer retention there will be the key. The foreign brokerage said the deal valuations are fair and are not earning dilutive while suggesting a target of Rs 1,080 on the stock. The target suggests 44 per cent potential upside over Wednesday’s closing price.
“The management sees the acquisition to breakeven in CY24 (almost FY25); this implies limited upside till then, with potential capital raise 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 that the deal is structurally positive given the cross-sell potential however post-closure it could be PAT neutral owing to likely integration costs. Hence we do not see a material change in FY23/24 profitability. “Customer retention is the key for benefits to accrue earlier. Axis could be a beneficiary of an upcoming growth cycle, as asset quality risk has receded. Discount to ICICI should narrow and hence rolling forward to FY24E ABV, we raise multiple from 2.1x to 2.3x increasing the TP from Rs 860 to Rs 975. Upgrade from Accumulate to ‘Buy’,” they added.
JPMorgan expects EPS dilution of about 4-7 per cent in FY24 but said the longer term benefits of the deal are positive. CET1 (common equity tier 1) post the transaction will fall to 13 per cent, it said while suggesting a target of Rs 770 on the stock.
Macquarie said Axis Bank trades at 1.8 times FY23 price to book value and that it is neutral on the stock with a target of Rs 790.
As per the deal, Axis Bank will pay Rs 12,300 crore in cash, which values the deal at 19 times 2020 Adjusted PAT of Rs 840 crore for consumer finance business. Axis Bank will pay another Rs 1,500 crore as integration cost spread over two years from date of closing of transaction.
The purchase should provide a strategic thrust to the bank’s retail banking aspirations and otherwise lagging RoAs in the long run as synergy benefits kick in, said Emkay Global.
Factoring in the bank’s estimated RoE of 21.7 per cent and the net worth of Rs 390 crore, the implied P/BV at 4.1 times is not too high for a readily available profitable retail business with RoA of 1.6 per cent, Emkay said. “That said, 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,” Emkay said while suggesting a target of Rs 1,020 on the stock.
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