scorecardresearchAxis Bank completes acquisition of Citibank’s India consumer business; does this make the stock buy-worthy?

Axis Bank completes acquisition of Citibank’s India consumer business; does this make the stock buy-worthy?

Updated: 02 Mar 2023, 06:31 PM IST
TL;DR.
Axis Bank on March 1 announced the acquisition of Citibank’s India consumer business from Citibank N.A. (acting through its branch in India) and the NBFC consumer business from Citicorp Finance (India) Limited for an overall consideration of 11,603 crore.
Axis Bank is one of the largest banks in India.

Axis Bank is one of the largest banks in India.

Most analysts and brokerage firms have expressed their positive views on Axis Bank stock after the lender announced it completed the acquisition of Citibank’s India consumer business.

Axis Bank on March 1 announced the acquisition of Citibank’s India consumer business from Citibank N.A. (acting through its branch in India) and the NBFC consumer business from Citicorp Finance (India) Limited for an overall consideration of 11,603 crore.

As Mint reported, the acquisition process had begun last year when Citigroup announced the sale of its consumer banking business, including wealth management, and loans to Axis Bank.

With the completion of this deal, Axis Bank would get 30 lakh unique customers of Citibank India, seven offices, 21 branches, and 499 ATMs across 18 Indian cities.

Shares of Axis Bank have gained about 13 percent in the last one year, outperforming the benchmark Sensex, which is up about 6 percent for the same period.

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Axis Bank shares in the last one year.

Brokerages give thumbs up to the acquisition

Most brokerage firms have a 'buy' recommendation on the stock as they believe Axis Bank will reap benefits in the long term from this move.

Brokerage firm Motilal Oswal Financial Services has a 'buy' call on the stock with a target price of 1,130.

The brokerage firm believes the acquisition of Citibank India’s consumer business has added nearly 18 lakh credit cards to Axis Bank’s outstanding cards and increased its market share by 3 percent.

The brokerage firm said while synergies in terms of cost savings and RoA (return on assets) accretion will start to accrue from the calendar year 2024 (CY24), the deal should result in a higher capital charge and high integration costs of 1,500 crore to be absorbed over the next two years.

Motilal is of the view that in the long term, the deal’s success would depend on how well Axis Bank is able to cross-sell its entire bouquet of banking products to Citi customers and gain from Citi’s well-recognised digital and operation processes.

"The CET I ratio is likely to moderate by nearly 177 bps to nearly 13.8 percent. Factoring in the one-time charge-off and other costs and profitability, we estimate the return on assets (RoA) of 1.9 perecent and return on equity (RoE) of 17.6 percent by FY25," Motilal Oswal said.

Kotak Institutional Equities has maintained a 'buy' call on the stock with a target price of 1,100.

"We maintain a 'buy' rating with a fair value of 1,100 (unchanged), valuing the bank at nearly 2.1 times book and nearly 13 times December 2024E EPS for RoEs of about 15 percent in the medium term," Kotak said.

"We like the franchise in the large private banks' space. Axis Bank is trading at a discount to its peers, given that the execution has room for improvement. However, it is unlikely that the discount is likely to widen from current levels," it added.

Brokerage firm ICICI Securities also maintained a 'buy' call on the stock with a target price of 1,130 as it said the acquisition elevates the position of Axis Bank to capture premium market share growth.

"As per management, RoE for Citi business acquisition comes to about 21.7 percent and hence this business would be RoE accretive. Acquisition PAT as per March 2022 disclosed numbers was 800-842 crore. Hence, it is estimated to be EPS and RoE accretive in CY24 (on an incremental basis)," said ICICI Securities.

Brokerage firm Prabhudas Lilladher also has a 'buy' call on the stock with a target price of 1,100.

The brokerage firm said the immediate benefits of the acquisition include the addition of a superior quality credit card portfolio ( 8,900 crore) coupled with a CASA boost of 150bps.

"We expect this business to turn profitable by the second half of FY25E given (i) post-tax integration costs of 1500 crore and (ii) Opex optimisation would happen only post-integration," said Prabhudas Lilladher.

Elara Capital also has a 'buy' call on the stock with a target price of 1,097.

"Axis Bank, in the past three years, has stitched together a strategy to strengthen fundamentals. That said, the volatile performance, first led by softer aspects, then on asset quality strain, has taken the sheen off fundamental changes, thus undermining underlying valuations," said Elara.

"Progress in underlying business reinforces our belief of improved delivery, but establishing consistency in the core business is the key," it said.

Brokerage firm JM Financial also maintained a 'buy' call on the stock with a target price of 1,120.

The brokerage firm believes Citi’s acquisition gives access to an upwardly mobile customer base and Axis gets opportunities to upsell/cross-sell to this base.

It said it will monitor the sustainability of the key parameters disclosed on the Citi portfolio and synergies thereof.

Among the global brokerage firms, CLSA maintained a 'buy' call on the stock with a target price of 1250, reported CNBC-TV18.

"The key positive after the deal is reduced risk of an immediate capital raise. After 18 months of integration costs, this deal should be RoE (return on equity) accretive," CNBC-TV19 quoted CLSA as saying.

JPMorgan maintained an 'overweight' view on the stock with a target price of 1,100 while it said Citi integration costs could drive marginal FY24 EPS (earnings per share) estimates dilution, reported CNBC-TV18.

While fundamentals are attractive and Axis Bank remains a long-term buy for most brokerages, technical analysts believe one should wait for some correction in the stock price before buying it.

Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers highlighted that after making the top of 970 on January 4, 2023, the stock has been making a ‘lower top lower bottom’ structure which resulted in a 14 percent cut in price.

"At the current juncture, daily RSI is continuously travelling from 30 to 50 levels which is a sign of bearish sentiment in the coming few sessions. At the current market price, fresh longs are not recommended. To be more precise buy will only trigger around the 800-810 zone for the target of 860 and a stop loss would be 780 on a closing basis," said Patel.

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Axis Bank stock technical chart.

Shares of Axis Bank closed 2.29 percent lower at 845.40 on BSE on Thursday.

According to a MintGenie poll, 41 analysts on an average have a ‘strong buy’ call on the stock.

Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.

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First Published: 02 Mar 2023, 06:31 PM IST