Emkay Global Financial has given Buy recommendation for AXIS Bank with a target price of Rs. 1020 in its research report issued on Mar 31, 2022

Emkay Global Financial’s report on AXIS Bank

Axis Bank has announced the acquisition of Citi Bank’s (incl subsidiaries) top-notch retail banking portfolio. 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. Following are the key takeaways from the call and our view: Axis would acquire consumer banking assets to the tune of Rs502bn, including loans worth Rs274bn (Mortgages: Rs100bn, Cards: Rs89bn, other retail/small banking loans: Rs85bn) and liquid assets of Rs228bn, against the liabilities/deposits of Rs502bn (including 81% 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%/7%. However, its CASA ratio will improve by 200bps to 47%, leading to some benefit on CoF, partly offset by a higher savings rate of 3% vs. 2.5% offered by Citi (will help with customer retention). The bank will also get access to a strong and affluent retail customer base for cross-selling, and thus driving in revenue gains (including fees) in the long run.

Outlook

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. Currently, we have a Buy rating on Axis with a TP of Rs1,020 (based on 2x Dec’23E ABV + subs value of Rs73).

More Info

At 13:40 hrs Axis Bank was quoting at Rs 756.95, up Rs 6.75, or 0.90 percent.

It has touched an intraday high of Rs 763.90 and an intraday low of Rs 751.40.

It was trading with volumes of 344,250 shares, compared to its thirty day average of 330,327 shares, an increase of 4.21 percent.

In the previous trading session, the share closed up 1.72 percent or Rs 12.65 at Rs 750.20.

The share touched its 52-week high Rs 866.60 and 52-week low Rs 626.40 on 25 October, 2021 and 12 April, 2021, respectively.

Currently, it is trading 12.65 percent below its 52-week high and 20.84 percent above its 52-week low.

Market capitalisation stands at Rs 232,364.56 crore.

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