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Axis Bank today completed the acquisition of Citibank's consumer businesses in India (announced in Mar2022). The total consideration to be paid has been revised lower than previously announced to INR 116bn (-6% reported earlier) given runoff in deposits (by 21%), lower credit cards (by 3%) and other adjustments. Despite the decline, the overall profitability is likely to be similar to what was previously announced at INR 8-8.5bn on this portfolio. Axis Bank will incur transition and servicing costs of INR 15bn over the next 18months and will expense the goodwill created as a part of this acquisition in 4QFY23 itself. Given Axis Bank’s internal accruals, the resulting CET1 ratio is likely to be ~13.8% vs ~13% expected earlier and bank remains confident that there is no immediate requirement to raise capital to support organic growth plans post the closure of the transaction. We will revisit our earnings estimates post 4Q23 results incorporating the charge-off of goodwill and higher opex for FY24/FY25. On a post-integration basis, the book would be RoE accretive to Axis Bank on a steady-state basis. We believe Citi’s acquisition gives access to an upwardly mobile customer base and Axis gets opportunities to upsell/cross-sell to this base. We monitor the sustainability of the key parameters disclosed on the Citi portfolio and synergies thereof. Maintain BUY with unchanged TP of INR 1,120.

* Citi franchisee parameters held on well since acquisition announcement: With the Citi acquisition, Axis Bank now gets access to Citi’s large and affluent customer franchise consisting of 0.9mn retail bank clients and 1.8mn credit card customers. The loan book to be acquired of INR 273bn (vs INR 274bn at time of acquisition announcement) has broadly remained stable with credit cards and mortgages contributing 31.5% and 37% resp. Though there were some outflows in Citi’s deposits which stood at INR 399bn (vs INR 502bn earlier). Axis Bank’s combined deposit base is expected to increase to INR 8.9trn with CASA ratio improving by 150bps to 46%. Despite, 1/4th of the Credit card customers not providing consent, the acquisition makes Axis the 4th largest credit card player with 11.2mn outstanding credit cards and robust annual spend per card INR 152,000. Additionally, the combined entity will now become the 3rd largest wealth management franchise with an AUM of INR 3.8trn (though Citi’s wealth AUM has declined to INR 0.95trn from INR 1.1trn earlier). ? Minor decline in cash consideration; goodwill

* Minor decline in cash consideration; goodwill to be expensed in 4Q: The cash consideration has been revised downwards to INR 116bn (vs INR 123.25bn earlier) basis change in Citi’s business since acquisition announcement; this consideration will be entirely charged to P&L (no tax benefit) in 4Q23. Management indicated that goodwill and intangible charge and increase in asset base of account of Citi loan book (INR 3.3bn impact @13% of RWA) will impact the CET1 by 177bps with proformaCET1 coming down to 13.78% - reasonably sufficient levels of CET1 to support loan growth in near term as per management. Further, Axis also has estimated a post-tax integration cost of INR 15bn (INR 20bn pre-tax) which will be charged to P&L over 18months. Additionally, management indicated that they will likely take one-time impact of policy harmonisation

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