Buy Axis Bank Ltd For Target Rs.970 - ICICI Direct
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Acquisition synergies to reap benefits over time…
About the stock: Axis Bank is the third largest private sector bank in India with a balance sheet size of | 11.1 lakh crore as on December 2021.
The bank has a large footprint across India with 4700 branches
Retail and SME comprise ~65% of total loans
Company update: Axis Bank proposed to acquire Citibank’s India consumer business from Citibank NA and NBFC consumer business. The acquisition is subject to customary closing conditions, including receipt of regulatory approvals.
The total purchase consideration will be up to | 12,325 crore (in all cash deal). The integration process will be completed in Q4FY23. CET1 is expected to decline ~230 bps to 13%
Additional deposits of | 50200 crore (of which 81% is CASA) are expected to be added in Axis Bank’s balance sheet raising deposits by 7% and overall advances by 4%. Wealth AUM of | 1,10,900 crore to be acquired from Citi Wealth & Private Banking
What should investors do? Axis Bank’s share price has given ~8% returns in the past year. We believe the proposed acquisition will give a competitive advantage by gaining market share and improve profitability and return profile of the bank.
We retain our BUY rating on the stock
Target Price and Valuation: We value Axis Bank at ~2.3x FY24E ABV and maintain our target price at | 970.
Key triggers for future price performance:
High yielding credit card acquisition to aid margins. Acquisition is in the right direction. Synergies are expected to play out from FY25E
Access to affluent customer base and accretion of wealth AUM to aid cross sell & fee based income
Alternate Stock Idea: Apart from Axis, in our coverage we also like HDFC Bank.
HDFC Bank has been a steady performer even during turbulent times and offers consistency along with strong operational matrix
BUY with a target price of | 2000
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