Axis Bank shares: What Citibank India’s acquisition means for the stock? Should you buy?

“While upfront merger costs are high, sustainable RoE from the Citi portfolio would be higher than AXIS’s standalone RoE. The Citi acquisition will strengthen AXIS’s growth journey by enhancing its deposit, credit card and wealth franchise and giving it access to salary accounts of 1,600 corporates, which would serve as an easy base to cross-sell Axis products,” said Nuvama Research who in light of the value-accreting deal and improving standalone financials of Axis Bank has reiterated ‘BUY’ rating with target price of ₹1,150.

What Citi adds to Axis’ franchise? 

Axis Bank will now own Citibank NA India’s consumer business & NBFC subsidiary Citicorp Finance (India). This lifts Axis’ credit card base by 19%, Casa deposits by 8% & wealth-mgmt. AUMs by 33%, as per Jefferies, but it doesn’t add much to loans (up 4%), deposits (up 5%) and branches expand by just 1%, normalised profit of ₹8-8.4 bn adds 3% to FY24e profit. 

“This franchise has diluted a bit but is adjusted in 6% cut to value. Goodwill w-off of ₹116 bn will drive loss in 4Q & adj. for integration cost breakeven may be in 2Q/3QFY25; we build it in forecasts. As CET-I goes to 13.8% we watch out for raise,” the note stated.

“We factor earnings changes from merger leading to 53% cut to FY23 profit but raise by up to 3% for FY24-25 profit. Stock trades at discount to other private banks, but drag on profits and potential share supply can limit immediate re-rating. We maintain our Buy rating but cut target price to ₹1,100 (from ₹1,170),” recommended Jefferies.

Another brokerage Antique Stock Broking said that the key here would be to understand the overlap between Axis Bank and Citi’s customer base and synergy benefits that would accrue to the bank and would play-out 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 adjusted for subsidiaries and impact of networth hit (without factoring capital dilution). We lower our TP to ₹1,025. Buy,” it added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.