Axis Bank shares rise after Citibank retail business acquisition: Outlook on shares

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Axis Bank shares price gained more than 1% on Thursday morning, after it confirmed reports of acquiring Citibank’s retail business. Axis Bank will be paying Rs 12,325 crore to Citibank for the acquisition to acquire 30 lakh unique customers. Here are the major highlights from the deal.


Axis Bank- Citibank deal: Details of the deal

  • Axis Bank will pay Rs 12,325 crore in cash for the deal. Citibank has 35 branches across the country and its retail business comprises around a third of its overall business. 
  • The acquisition will allow Axis Bank to take over Citibank’s retail banking, credit card, wealth management, and consumer loans business in India. The transaction, however, does not include selling-off Citibank’s institutional client businesses in the country.
  • The buyout will give Axis Bank access to 25 lakh Citibank customer cards and will result in an increase of around 31% to its existing card base.
  • Around 3,600 employees who are part of Citibank's India consumer business will be transferred to Axis Bank "upon completion of the proposed transaction."
  • The deal is expected to close in the first half of calendar year 2023, subject to requisite regulatory approvals.

Benefits to Axis Bank from the deal

  • The transaction will aid Axis Bank in increasing its card spends market share by 480 basis points, the MD said.
  • Citibank has a complimentary and quality portfolio with amongst the highest monthly spends per card across industry and a book size of approximately Rs 8,900 crore as of June 2021.
  • The combined AUM of Axis Bank’s wealth management business will increase by 42%, making it the third-largest wealth manager in the country.
  • The combined current account and savings account ratio, on a proforma basis, post completion of the transaction would improve by 200 basis points to 47% and it will also be liquidity coverage ratio accretive, according to Axis Bank. 
  • As of now, Axis Bank has said that it will fund the deal from its own balance sheet.

Axis Bank: Brokerage radar

CLSA

CLSA said that Citibank’s retail business acquisition is a good deal. Customer retention would remain key for Axis Bank, even though there are some safeguards in place. The purchase consideration at 19 times EPS is fair, and will not be earnings dilutive, as per the research house. As per its estimates, the deal is 8-9% book dilutive but would also be 150-basis points ROE accretive. The firm has maintained a ‘Buy’ rating on the stock with a target price of Rs 1,080. 

Jefferies

Jefferies said that the deal will consume 250 bps of capital, but will be value accretive in 2024. The churn in staff, clients and unexpected costs are the key risks. The valuation gap with larger peers should converge with increase in Return in Assets. Jefferies has maintained a ‘Buy’ call with a target of Rs 1,040. 

Phillip Capital

Phillip Capital said the deal provides Axis Bank instant access to the affluent customer segment. Such deals of affluent retail franchisees are rare in the banking industry and hence comes with a premium, noted Phillip Capital. The larger benefits could flow overtime and are subjected to Axis Bank’s ability to contain customer attrition, rationalise cost and cross sell. The brokerage has a target of Rs 950 on the stock.

Morgan Stanley

MS maintained an ‘Overweight’ call on Axis Bank with a target price of Rs 930. It said that the Citi deal would help strengthen the bank's franchise and reduce the gap with respect to peers.

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