Axis Bank has completed the acquisition of the Indian consumer/wealth business of Citi with effect from Wednesday, March 1, 2023. 11,603 crore, which is marginally lower than the amount announced in March 2022. The deal will be funded through internal resources, and the CEO reiterated that there are no plans to raise capital in the near future.
“While the upfront merger cost is high, the sustainable ROE from the Citi portfolio will be higher than the standalone ROE of Axis. City The acquisition will strengthen Axis’ growth journey by enhancing Axis’ deposit, credit card and wealth franchise and providing access to salary accounts of 1,600 corporates, which will serve as an easy base to cross-sell Axis products,” said Nuwama. Research said the deal’s value addition and improvement in standalone financials axis Bank reiterated ‘Buy’ rating with a target price of 1,150.
What has Citi added to the Axis franchise?
Axis Bank will now own Citibank NA India’s consumer business and NBFC subsidiary Citicorp Finance (India). This has increased Axis’ credit card base by 19%, CASA deposits by 8% and Wealth-MGMT. AUM 33%. But it doesn’t add much to loans (up 4%), deposits (up 5%) and branch expansion only 1%. Normalized profit of Rs8-8.4bn adds 3% to FY24e profit.
“This franchise has been diluted a bit but accommodated in a 6% reduction in value. Goodwill w-off 116 billion will drive losses in 4Q and adj. Cost breakeven for integration could be in 2Q/3QFY25; We build it into forecasts. As CET-I goes up to 13.8%, we look for growth,” Jefferies said.
“We expect the merger to convert into earnings, leading to a 53% cut in FY23 profit, but a 3% boost to FY24-25 profit. The stock trades at a discount to other private banks, but the drag on profits and a potential share supply could limit an immediate re-rating. We maintain our buy rating but cut the target price 1,100 (from 1,170),” recommends Jefferies.
Another brokerage Antique Stock Broking said that the key here would be to understand the overlap between the customer base of Axis Bank and Citi and the synergistic benefits that the bank would accrue and would last only over a period of time.
“Our pro-forma ROA expectations are largely unchanged at 1.6%-1.7% and the stock trades at 1.9x and 1.6x FY24/25 BVE taking into account the impact of subsidiaries and net worth hit (without capital dilution) adjusted for. we reduce our TP 1,025. Buy,” it added.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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