Axis Bank: Earnings Accretive Takeover
04-04-2022

Axis Bank: Earnings Accretive Takeover

Event: Axis will acquire Citi’s consumer banking business for Rs. 12,300 all-cash deal. Apart from the purchase consideration, Axis would also incur integration cost of Rs. 1,500 Cr spread across the next two financial years.

What do they get?

As part of the deal Axis would get the entire India consumer business of Citi which has a loan book of ~Rs. 27,400 Cr and deposits of ~Rs. 50,200 Cr, with the remaining assets in the form of liquid investments. Axis will also get 21 branches, 500 ATMs and 3600 employees as part of the deal.

Business to be acquired by Axis Bank

Citi’s presence is across all sub-segments in retail. Mortgage and credit cards are the major segments with the two segments forming ~69% of the loan book. Within mortgage, 90% is owner occupied and in credit cards, the outstanding credit cards are 2.5 million with 4% market share.

Axis would also get the wealth and private banking businesses of Citi, which has total AUM of Rs. 1,10,900 Crores. Out of this, Wealth Management AUM is Rs. 82,000 Cr comprising of 40,000 affluent customers and a Private Banking AUM of Rs. 28,900 Cr comprising of more than 100 families with net worth of more than US$25 million.

Valuation

Axis Bank has not disclosed the latest financials of Citi business. However, it has reported pro-forma numbers for CY20, for a representation of the profitability of the business.

Axis is paying ~16.4x pro-forma CY20 earnings for this business based on pro-forma CY20 numbers. The valuation looks reasonable when compared across lenders and using fundamental valuation multiples. The multiple provided by Axis Bank to acquire Citi India retail business looks attractive.

Risk

Customer retention would be a key challenge and variable to monitor as Citi has been losing market share in credit cards for the last ~7 years.