Axis Bank benefited from Citi deal in this way, further stock outlook positive

The reason behind the strong rally in axis Bank This is due to the lender’s move to acquire Citibank’s consumer businesses in India. Both Axis Bank and Citibank have got the approval of their boards of directors. The proposed acquisition strengthens Axis Bank’s position for accelerated premium market share growth in India. The deal was announced on March 30 and Axis Bank shares have been in a buying frenzy since then. The bank’s stock outlook is also positive after the Citibank deal.

Stock Display:

Shares of Axis Bank increased on Friday. closed on stock by 774.45 each up 13.80 or 1.81% on BSE. Shares were near intraday high 775.70 per.

At the current market price, the market valuation of Axis Bank is 2,37,732.43 crore on BSE.

Shares of Axis Bank have gained at least 7.6% this week. stood on shares 720.9 each on March 25 last week.

Axis Bank outperformed the benchmark BSE Sensex and NSE Nifty 50 with gains of around 3.5% this week.

Mega Deal:

As per the agreement, Axis Bank will pay the 12,325 crore to Citibank for acquisition of consumer business in India.

Citibank’s consumer business includes credit cards, retail banking, wealth management and consumer lending. In addition, the transaction includes the sale of Citi’s non-banking financial company, Citicorp Finance (India).

Through the acquisition, Axis Bank will gain access to Citibank’s large and affluent customer franchise, which has a bouquet of fee-oriented and profitable segments, including a quality credit card portfolio, rich wealth management clients, with 81 per cent CASA Meaningful deposits included. With a strong consumer loan portfolio. Post the acquisition, Axis Bank will have ~28.5 million savings accounts, 2.3 lakh+ Burgundy customers and 10.6 million cards.

Also, Axis Bank will have access to 7 offices, 21 branches and 499 ATMs across 18 cities.

In addition, the acquired portfolio will increase the credit card customer base of Axis Bank by ~31% with an additional 2.5 million cards, which in turn will boost the card’s balance sheet position among the top 3 players in the Indian market. In addition, the wealth and private banking portfolio will add enormous value to the Axis Burgundy business, further accelerating its growth ambitions in that segment. On an overall basis, the proposed transaction would increase the bank’s deposit base by ~7% (compared with ~12 % growth in CASA) and advances by ~4%.

The transaction is expected to close between 9-12 months.

How Axis Bank Benefited From Citi Deal?

Analysts at JM Financials said in their report, “We believe Axis Bank has acquired a quality franchise and this gives a strong presence in the company.

Prosperous, upward mobile retail consumer base in top 8 cities in the country. At the same time, we also note that such a franchise (normalized ROA > 2.25-2.50% with a strong fee income proposition) does not come at an affordable cost (including integration costs and incremental equity allocation – we believe that the acquisition price traded between 2.5-3.0x net worth).”

In the view of these analysts, Axis Bank’s NIM in its current position will increase by C.20 bps in NIM, support quality of deposits/LCR management (+200 bps CASA increase), and 10-12 bps in ROA (excluding integration cost) ) will be added.

However, analysts at JM Financial said in the report that “these results are subject to the quality of customer base/staff/engagement quality as well as Axis Bank’s ability to manage smooth transitions and are a key monitorable in the interim. In, we see Axis Bank

Providing a strong balance sheet and a steady earnings recovery while expanding our organic retail franchise. We see that the bank is progressing well towards delivering a RoA of 1.5% by FY24E on a pre-consolidation basis.”

Should you buy Axis Bank shares?

Analysts at JM Financial said, “We keep our earnings estimates unchanged and will update the bank’s 4QFY22/FY22 earnings the same post. , our BVPS requirements for FY23E/FY24E will be revised 373/434 per share vs. 410/465 per share at present (-9%/-6% impact) and ROA/ROE 0.5%/5.8% for FY23E and 1.6%/19.2% for FY24E. Maintain BUY with unchanged TP 950 (core bank valuation at 2.0x FY24E BVPS).”

“We maintain our positive outlook on Axis Bank, following Citibank’s consumer banking deal. The deal is expected to cost Axis Bank around Rs 123 billion, to be paid over between 9-12 months, subject to regulatory approvals. The deal will help strengthen Axis. Reduce the gap between the bank’s balance sheet and its peers. The deal could have an impact of 180-200 bps on capital with an expected ROA accretion of 50 bps We maintain buy on Axis Bank with a TP of 984, given the valuation gap and positive growth in the outlook,” said Ajit Kabi, BFSI analyst at LKP Securities.