Axis Bank

BUY
Axis Bank to acquire CitiBank’s India Consumer Business CMP Rs 750
Axis Bank today announced the signing of an agreement for acquisition Target / Upside Rs 970 / 29%
of CitiBank’s (India) consumer business including credit cards, retail NIFTY 17,498
banking, wealth management, consumer loans, and Citicorp’s (Citi’s
NBFC) CV/CE and PL portfolios. The transaction, expected to be closed in Scrip Details
the next 9-12 months, will also include transfer of ~3,600 Citi employees Equity / FV Rs 6,128mn / Rs 2
supporting the consumer businesses to Axis Bank. The deal adds ~3mn Market Cap Rs 2,299bn
customers to the Bank, largely complimentary to its existing base. The
acquisition gives strategic thrust to Axis in closing gap with peers and aids USD 30.3bn
long-term return ratios (starting FY25) as synergies accrue. 52-week High/Low Rs 867/ 627
Contours of the Deal Avg. Volume (no) 11,979,200
As per the deal, Axis would pay an all-cash consideration of Rs123bn on Bloom Code AXSB IN
closing of the transaction and incur additional Rs15bn worth integration
costs over the next 2 years. Liabilities acquired under the deal (deposits Price Performance 1M 3M 12M
worth Rs502bn) would be fully matched by advances (Rs274bn) and cash. Absolute (%) 1 12 8
On the liabilities side, Citibank’s relatively small but CASA heavy portfolio Rel to NIFTY (%) (3) 11 (9)
Company Update

(CASA ratio of ~81%) would lead to ~200bps improvement in Axis’ CASA

ratio. On the assets side, CitiBank’s credit card portfolio (worth Rs89bn), Shareholding Pattern
also a part of the deal, is largely comprised of affluent/super affluent Jun'21 Sep'21 Dec'21
customers and is complementary to Axis’ existing portfolio. There is
protection (repricing mechanism) built in for Axis in case business Promoters 11.7 11.6 9.7
parameters deteriorate during the transition period, ensuring that both Citi MF/Banks/FIs 24.3 25.3 30.2
and Axis have skin in the game. FIIs 52.5 51.4 47.4
Synergies to accrue from FY25E Public / Others 11.5 11.7 12.6
Axis has paid for the Citi franchise- customer relationships, Citi phone
banking and experienced team- which the bank would have taken a long Axis Bank Relative to SENSEX
time to put up together on its own. Over the longer term, there will be 120
synergies from strong cross sell opportunity given the breadth of services
Axis can offer to Citi’s loan and wealth customers, with miniscule additional
110
cost of global support centres leading to cost benefits. Axis expects cost
savings of 30-40% after 2 years of transaction closure. Consequently, the
business is expected to turn RoE accretive by CY24. 100

A synergistic acquisition; Benefits will take time to accrue

90
Valued at 18x trailing P/E after factoring in estimated equity requirement,
we find the valuations fair. The consolidated franchise will be able to
generate healthy RoAs at 1.7-1.8% in our view (~1.6% for standalone Axis) 80

given the business synergies. This is however has a long gestation given the
near term addition opex costs Axis needs to incur. We value the bank at 70
Jul-21
Jun-21

Aug-21
Sep-21
Mar-21
Apr-21

Oct-21
Nov-21
Dec-21
Jan-22
Feb-22
May-21

2.3x Mar-24E P/ABV, and raise TP to Rs970 (from Rs930 earlier). RoEs for
FY25/26E at ~18% benefits from rise in leverage and will be impacted by
additional capital raise.
AXSB SENSEX

.
FINANCIALS (Rs Mn) VP - Research: Mona Khetan
Particulars FY20A FY21A FY22E FY23E FY24E Tel: +91 22 40969762
Net Interest Income 252,062 292,391 331,486 401,531 458,160 E-mail: monak@dolatcapital.com
Growth(%) 16.1 16.0 13.4 21.1 14.1 Associate: Arjun Bagga
PPOP 234,382 257,021 243,882 307,477 373,352 Tel: +9122 40969766
PAT 16,273 65,885 122,827 173,310 210,168 E-mail: arjunb@dolatcapital.com
EPS (Rs) 5.8 21.5 40.1 56.6 68.6
ABV (Rs) 267.4 308.4 344.2 354.7 416.1 Associate: Akshay Gupta
ROA (%) 0.2 0.7 1.2 1.4 1.5
Tel: +9122 40969714
E-mail: akshayg@dolatcapital.com
ROE(%) 2.1 7.1 11.5 15.3 16.9
PER(x) 130.1 34.9 18.7 13.3 10.9
P/ABV (x) 2.8 2.4 2.2 2.1 1.8

March 30, 2022

 Transition expected to be completed by H1FY25

Source: DART, Company

Premium Credit Card portfolio to lead to higher spends per card

Source: DART, Company

Axis’ CASA ratio to improve due given high CASA % for CitiBank

Source: DART, Company

March 30, 2022 2 Axis Bank

 Advances Mix for CitiBank

Mortgage Credit Cards

36% 33%

Personal Loans &

Ready Credit
8%
Asset Backed Small Business
Finance Lending
19% 4%
Source: DART, Company

Change in normalized metrics for standalone and merged bank

Y/E Mar (%) Axis Axis (merged,
(standalone) FY25E)
NII / Assets 3.2 3.3
Other Income / Assets 1.4 1.6
Net Operating Income / Assets 4.7 5.0
Total Opex / Assets 2.0 2.0
Operating Profits / Assets 2.7 2.9
Op Profit ex Except Items / Assets 2.7 2.9
Provisions / Assets 0.6 0.7
Profit Before Tax / Assets 2.0 2.2
Tax Expenses / Assets 0.5 0.6
RoA 1.5 1.7
Leverage (x) 9.9 10.5
RoE 15.2 17.9
Source: Company, DART

March 30, 2022 3 Axis Bank

 Key Financials post acquisition
Y/E March FY20 FY21 FY22E FY23E FY24E FY25E FY26E
Loan & Advances 5,714,242 6,237,202 7,048,038 8,246,205 9,483,135 10,905,606 12,541,446
Net Interest Income 252,062 292,391 331,486 401,531 458,160 517,342 587,116
PPP ex Except. Items 234,382 257,021 243,882 307,477 373,352 455,069 542,067
Reported Profits 16,273 65,885 122,827 173,310 210,168 262,709 313,681
Earnings Per Share (Rs) 5.8 21.5 40.1 56.6 68.6 85.7 102.4
P/E (x) 78.9 21.2 11.3 8.0 6.6 5.3 4.4
Adj. BV (Rs) 267.4 308.4 344.2 354.7 416.1 494.1 587.9
P/ABV (x) 1.7 1.5 1.3 1.3 1.1 0.9 0.8
Gross NPAs Ratio (%) 4.9 3.7 3.0 2.4 2.2 2.0 1.9
Adj. RoA 0.2 0.7 1.16 1.44 1.53 1.68 1.77
Adj. RoE 2.1 7.1 11.5 15.3 16.9 17.9 18.1
Source: Company, DART

Du pont analysis for the merged entity

Y/E Mar (%) FY20 FY21 FY22E FY23E FY24E FY25E FY26E
NII / Assets 2.9 3.1 3.1 3.3 3.3 3.3 3.3
Other Income / Assets 1.8 1.6 1.4 1.6 1.6 1.6 1.7
Net Operating Income / Assets 4.7 4.6 4.5 4.9 4.9 5.0 5.0
Employee Exp. / Assets 0.6 0.6 0.7 0.8 0.7 0.7 0.7
Other Opex/ Assets 1.4 1.3 1.5 1.6 1.5 1.3 1.3
Total Opex / Assets 2.0 1.9 2.24 2.35 2.21 2.04 1.94
Operating Profits / Assets 2.7 2.7 2.3 2.5 2.7 2.9 3.1
Exceptional Items / Assets - - - - - - -
Op Profit ex Except Items / Assets 2.7 2.7 2.3 2.5 2.7 2.9 3.1
Provisions / Assets 2.2 1.8 0.8 0.6 0.7 0.7 0.7
Profit Before Tax / Assets 0.6 0.9 1.5 1.9 2.0 2.2 2.4
Tax Expenses / Assets 0.4 0.2 0.4 0.5 0.5 0.6 0.6
RoA 0.2 0.7 1.2 1.4 1.5 1.7 1.8
Leverage (x) 10.8 9.8 10.0 11.2 10.9 10.5 10.1
RoE 2.1 7.1 11.5 15.3 16.9 17.9 18.1
Source: Company, DART

Contours of the deal and expectations

Source: Company, DART

March 30, 2022 4 Axis Bank

 1 yr forward P/ABV chart
(x)
1-yr FWD P/ABV
3.5
3.0
2.5
2.0
1.5
1.0
0.5
Jul-15

Jul-20
Mar-12
Aug-12

Apr-14
Sep-14
Feb-15

May-16
Oct-16
Mar-17
Aug-17

Apr-19
Sep-19
Feb-20

May-21
Oct-21
Mar-22
Jan-13
Jun-13
Nov-13

Dec-15

Jan-18
Jun-18
Nov-18

Dec-20
P/ABV Mean +1 STD -1 STD +2 STD -2 STD
Source: Company, DART

Concall Highlights

Deal Dynamics
 Funding of the deal would be done through internal accruals. The balance
sheet is strong enough to fund the transaction and growth capital would be
raised when required.
 The bank will incur integration costs of Rs15bn (over two year period) post
completion of transaction. This includes Rs12bn to Citi for the services it will
provide to the bank during transition and balance Rs3bn at bank’s end for
integration.
 Non-compete agreements are also a part of the deal for the
portfolios/services being purchased. While Citi may retain the corporate
relationships, all associated individual accounts will be transferred to Axis.
 Axis needs to take customer consent which will be done over the next 9-12
months. Inputs like customer openness to Axis were taken in consideration
while arriving at bid price.
 Axis has paid for the Citi franchise- customer relationships, Citi phone
banking and experienced team- which the bank would have taken a long
time to put up together on its own. Key synergies include strong cross sell
opportunity given the breadth of services Axis can offer and miniscule
additional cost of global support centres.
 The assets and liabilities have held up well in Q3FY22 compared to the
reference balance sheet (of Q1FY22). There is protection (repricing
mechanism) built in for Axis in case business parameters deteriorate during
the transition period. Guidance of RoE accretion by CY24 includes possible
attrition and expected portfolio growth.
 Axis will find solutions to ensure that Citi’s employee continue with Axis
Bank. Overlap of incoming Citi employees will be taken care of by growth in
the portfolio and attrition. Salary differences between Axis and Citi are not
as high as perceived.
 While Axis didn’t have detailed customer data, surveys indicated low
overlaps with Bank’s own portfolio.

March 30, 2022 5 Axis Bank

 Portfolio characteristics
 Axis’ SA rates are higher than Citi’s SA rates.
 Excluding mortgages, average tenure for the portfolio is ~28months. For PL
the average tenure is 6 months. And for ABF it is 20-25 months.
 The two CC portfolios are largely complementary with Citi’s strength being
top 8 markets, affluent/super affluent customers, while Axis is spread across,
with mass affluent customer category.
 Customer attrition over the last few months has not been alarming.
 High C/I ratio for Citi provides an opportunity for optimisation.

March 30, 2022 6 Axis Bank

 Profit and Loss Account (Rs Mn)
Particulars FY21A FY22E FY23E FY24E
Interest Income 636,453 698,286 823,797 951,446
Interest expenses 344,062 366,800 422,266 493,286
Net interest income 292,391 331,486 401,531 458,160
Other incomes 148,382 150,022 189,557 219,456
Total expenses 183,752 237,627 283,611 304,264
- Employee cost 61,640 77,050 90,919 100,011
- Other 122,111 160,576 192,692 204,253
Pre provisioning profit 257,021 243,882 307,477 373,352
Provisions 168,963 79,741 75,872 92,491
Profit before taxes 88,058 164,141 231,606 280,861
Tax provision 22,173 41,314 58,295 70,693
Profit after tax 65,885 122,827 173,310 210,168
Adjusted profit 65,885 122,827 173,310 210,168

Balance Sheet (Rs Mn)

Particulars FY21A FY22E FY23E FY24E
Sources of Funds
Equity Capital 6,128 6,128 6,128 6,128
Reserves & Surplus 1,009,903 1,114,133 1,145,096 1,336,667
Minority Interest - 0 0 0
Net worth 1,016,030 1,120,260 1,151,224 1,342,795
Borrowings 1,428,732 1,541,685 1,396,615 1,773,054
- Deposits 7,073,061 8,093,844 9,776,308 10,891,615
- Other interest bearing liabilities 0 0 0 0
Current liabilities & provisions 443,362 488,745 585,003 601,313
Total Liabilities 9,961,184 11,244,534 12,909,151 14,608,776
Application of Funds
Cash and balances with RBI 617,298 760,931 927,663 989,891
Investments 2,261,196 2,463,601 2,667,473 2,890,503
Advances 6,237,202 7,048,038 8,246,205 9,483,135
Fixed assets 42,450 48,471 51,968 56,711
Other current assets, loans and advances 803,038 923,493 1,015,843 1,188,536
Total Assets 9,961,184 11,244,534 12,909,151 14,608,776
E – Estimates

March 30, 2022 7 Axis Bank

 Important Ratios
Particulars FY21A FY22E FY23E FY24E
(A) Margins (%)
Yield on advances 8.0 7.8 8.1 8.2
Yields on interest earning assets 7.3 7.2 7.5 7.5
Yield on investments 6.8 6.6 6.6 6.7
Costs of funds 4.2 4.0 4.1 4.1
Cost of deposits 4.9 4.0 3.8 3.8
NIMs 3.4 3.4 3.6 3.6
(B) Asset quality and capital ratios (%)
GNPA 3.7 3.0 2.4 2.2
NNPA 1.1 0.9 0.8 0.7
PCR 72.4 72.0 72.0 72.0
Slippages 3.0 3.2 2.3 2.2
NNPA to NW 6.9 5.9 5.6 5.1
CASA 45.1 45.0 47.0 47.0
CAR 19.1 19.1 16.2 16.5
Tier 1 16.5 16.0 13.5 13.8
Credit - Deposit 88.2 87.1 84.3 87.1
(C) Dupont as a percentage of average assets
Interest income 6.7 6.6 6.8 6.9
Interest expenses 3.6 3.5 3.5 3.6
Net interest income 3.1 3.1 3.3 3.3
Non interest Income 1.6 1.4 1.6 1.6
Total expenses 1.9 2.2 2.3 2.2
- cost to income 41.7 49.4 48.0 44.9
Provisions 1.8 0.8 0.6 0.7
Tax 0.2 0.4 0.5 0.5
RoA 0.7 1.2 1.4 1.5
Leverage 9.8 10.0 11.2 10.9
RoE 7.1 11.5 15.3 16.9
RoRwa 0.3 1.0 1.7 2.0
(D) Measures of Investments
EPS - adjusted 21.5 40.1 56.6 68.6
BV 331.6 365.6 375.8 438.3
ABV 308.4 344.2 354.7 416.1
DPS 5.0 5.0 5.0 5.0
Dividend payout ratio 0.0 0.0 0.0 0.0
(E) Growth Ratios (%)
Net interest income 16.0 13.4 21.1 14.1
PPoP 9.7 (5.1) 26.1 21.4
Adj PAT 304.9 86.4 41.1 21.3
Advances 9.2 13.0 17.0 15.0
Total borrowings (3.4) 7.9 (9.4) 27.0
Total assets 8.8 12.9 14.8 13.2
(F) Valuation Ratios
Market Cap (Rs. mn) 2,299,191 2,299,191 2,299,191 2,299,191
CMP (Rs.) 750 750 750 750
P/E (x) 34.9 18.7 13.3 10.9
P/BV (x) 2.3 2.1 2.0 1.7
P/ABV (x) 2.4 2.2 2.1 1.8
Div Yield (%) 0.7 0.7 0.7 0.7
E – Estimates

March 30, 2022 8 Axis Bank

 DART RATING MATRIX
Total Return Expectation (12 Months)
Buy > 20%
Accumulate 10 to 20%
Reduce 0 to 10%
Sell < 0%

Rating and Target Price History

Month Rating TP (Rs.) Price (Rs.)

(Rs) AXSB Target Price Apr-21 BUY 875 700
950 Oct-21 BUY 930 788
880 Jan-22 BUY 930 705
*Price as on recommendation date

810

740

670

600
Apr-21

May-21

Jun-21

Jan-22
Oct-21

Nov-21

Dec-21
Mar-21

Jul-21

Aug-21

Sep-21

Feb-22

DART Team
Purvag Shah Managing Director purvag@dolatcapital.com +9122 4096 9747

Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 4096 9745

CONTACT DETAILS
Equity Sales Designation E-mail Direct Lines
Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com +9122 4096 9709
Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 4096 9735
Jubbin Shah VP - Equity Sales jubbins@dolatcapital.com +9122 4096 9779
Yomika Agarwal VP - Equity Sales yomika@dolatcapital.com +9122 4096 9772
Anjana Jhaveri VP - FII Sales anjanaj@dolatcapital.com +9122 4096 9758
Lekha Nahar AVP - Equity Sales lekhan@dolatcapital.com +9122 4096 9740
Equity Trading Designation E-mail
P. Sridhar SVP and Head of Sales Trading sridhar@dolatcapital.com +9122 4096 9728
Chandrakant Ware VP - Sales Trading chandrakant@dolatcapital.com +9122 4096 9707
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Kartik Mehta Asia Head Derivatives kartikm@dolatcapital.com +9122 4096 9715
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