Axis Bank shares up 2% as it taps HNI customers with Citi’s retail biz deal; brokerages see upto 40% upside

Shares of Axis Bank, India’s third largest private bank, rose 1.8 per cent on Thursday, after the bank announced plans to acquire consumer businesses of rival Citibank in India. The lender’s stock was among volume toppers on both BSE Sensex and NSE Nifty 50 index. Analysts are bullish on Axis’s stock and said the deal provides the lender an instant access to affluent customer segments. Wealth and portfolio manager PhillipCapital sees 27 per cent upside to Axis’s stock, however it has cut target price to Rs 950 from Rs 970 apiece, with a Buy rating. Brokerage ICICI Securities sees a 40 per cent upside to the stock at a Buy rating and unchanged target price of Rs 1,050.

Deal with reasonable valuation

Axis Bank on Wednesday announced its acquisition of Citi India’s consumer businesses for Rs 12,325 crore. Apart from the credit card business, the deal includes Citi’s consumer loans portfolio, retail banking assets and wealth management business. Analysts said the deal is at a reasonable valuation and the private sector bank will benefit from the deal over time. Year-to-date, Axis Bank’s stock is up nearly 9 per cent while Bank Nifty is up about 2 per cent so far this year. ICICI Securities said the portfolio acquisition would increase Axis Bank’s advances by 4% to Rs 6,923 billion. It will bring Axis Bank closer to number three player in the credit card space by competing with HDFC Bank, SBI and ICICI Bank.

“The implied equity value of Rs 158 billion (including notional capital allocation of Rs 34.5 billion) suggests the deal is to be consummated at 18.7x normalised CY20 earnings and 4x book value. Even adjusting for the estimated integration cost of Rs15bn (of which Rs12bn will be paid to Citibank), the deal appears favourable,” ICICI Securities said in a note Thursday.

Tapping High Networth Individuals (HNIs) through the deal; retention is the key

Axis Bank, which was positioned as a bank for the mass and mass affluent segment now enters the ultra HNI segment through this deal, PhillipCapital said in a note Wednesday, as this was seen as a gap in Axis Bank’s customer positioning. “We view this as a strategic fit in Axis bank’s retail portfolio which would be EPS and Roe accretive in FY24. The larger benefits could flow overtime and is subject to Axis bank’s ability to contain customer attrition, rationalize cost and cross sell/upsell. We model 2.5% increase in EPS to Rs 66 and 1.9% increase in Roe to 16.4% for FY24e,” it added.

However, analysts and investors consider retention of customers as well as employees from Citi crucial to the deal. Axis Bank said Wednesday that it has factored in a conservative attrition rate and if Citi’s portfolio loses more customers, then the price of the deal would be renegotiated.

The deal helps Axis in plugging gaps in two areas – high yield lending portfolio and the wealth management portfolio; but in deals like these employees tend to leave the firm and take affluent clients with them, Digant Haria, Partner at GreenEdge Wealth told ET Now. Through the deal, Axis will get access to 2.55 million Citi credit cards users. At the same time, 3,600 Citi employees part of the consumer businesses will also be transferred to Axis.