Update: Axis Bank has completed acquisition of Citibank’s consumer business.
The Bank acquires:
🔸Rs 273 bn in assets
🔸Rs 400 bn of liabilities
for cash consideration of Rs 116.03 bn
Axis mgmt called it one the most complex acquisitions in India’s private banking history
🧵1/
The Bank acquires:
🔸Rs 273 bn in assets
🔸Rs 400 bn of liabilities
for cash consideration of Rs 116.03 bn
Axis mgmt called it one the most complex acquisitions in India’s private banking history
🧵1/
2/
Implied Equity value is Rs 149 bn, indicating a acquired valuation of 17.7x P/E based on FY22 earnings.
Deal appears favorable as it aligns with Axis' premiumization strategy and gives access to Citi’s
- Huge retail deposit base
- Affluent and profitable consumer franchise
Implied Equity value is Rs 149 bn, indicating a acquired valuation of 17.7x P/E based on FY22 earnings.
Deal appears favorable as it aligns with Axis' premiumization strategy and gives access to Citi’s
- Huge retail deposit base
- Affluent and profitable consumer franchise
3/
Some takeaways from Axis Bank conference call:
🔸ROE for Citi business comes at 21.7% and hence this business would be RoE accretive.
🔸Axis Bank had ROE of ~13% in FY22 and annualized ROE of 19.8% based on Q3FY23 results.
Some takeaways from Axis Bank conference call:
🔸ROE for Citi business comes at 21.7% and hence this business would be RoE accretive.
🔸Axis Bank had ROE of ~13% in FY22 and annualized ROE of 19.8% based on Q3FY23 results.
4/
🔸The acquisition was completed in an accelerated timeframe of 7 months post CCI approval and ahead of schedule.
🔸There is an estimated integration cost of Rs 15 bn (of which Rs 12 bn will be paid to Citibank) which is distributed over next 18 months (Sep 2024).
🔸The acquisition was completed in an accelerated timeframe of 7 months post CCI approval and ahead of schedule.
🔸There is an estimated integration cost of Rs 15 bn (of which Rs 12 bn will be paid to Citibank) which is distributed over next 18 months (Sep 2024).
5/
🔸P&L hit likely in Q4FY23: The cash purchase consideration will result in the formation of goodwill which Axis Bank will be writing off entirely in Q4.
🔸This will result in an accounting loss of Rs 50-60 bn towards one-time Goodwill cost, provisions, banker fees, etc
🔸P&L hit likely in Q4FY23: The cash purchase consideration will result in the formation of goodwill which Axis Bank will be writing off entirely in Q4.
🔸This will result in an accounting loss of Rs 50-60 bn towards one-time Goodwill cost, provisions, banker fees, etc
6/ Capital Adequacy (CAR)
🔸The deal will impact Axis Bank’s Tier 1 CAR by 180 bps from 15.5% to 13.8%, bringing it close to minimum required threshold
🔸Management highlighted that it does not need to raise capital immediately and has sufficient capital to fund organic growth
🔸The deal will impact Axis Bank’s Tier 1 CAR by 180 bps from 15.5% to 13.8%, bringing it close to minimum required threshold
🔸Management highlighted that it does not need to raise capital immediately and has sufficient capital to fund organic growth
7/
What does Axis Bank gain
🔸Access to Citi’s 6 Indian offices, 21 branches & 459 ATMs
🔸Credit card portfolio of 18 lakh+ premium customers with industry leading spends per card
Bank has taken explicit consent of customers before moving them to Axis from Citi
More details:
What does Axis Bank gain
🔸Access to Citi’s 6 Indian offices, 21 branches & 459 ATMs
🔸Credit card portfolio of 18 lakh+ premium customers with industry leading spends per card
Bank has taken explicit consent of customers before moving them to Axis from Citi
More details:
8/ What about Citibank's employees?
🔸Axis made offers to every Citi employee who was part of this transaction
🔸~96% of employees, accepted the offer across grades and locations (Total: ~3200)
As per mgmt, the offer by Axis Bank was no less favorable for the Citi employees.
🔸Axis made offers to every Citi employee who was part of this transaction
🔸~96% of employees, accepted the offer across grades and locations (Total: ~3200)
As per mgmt, the offer by Axis Bank was no less favorable for the Citi employees.
9/ Key risk:
In near term, the acquisition will not be financially accretive, and lead to a hit on Net worth (via Goodwill write-off) and CET-1 (due to capital allocation).
The indicated integration cost of Rs 15 Bn over next 2 years could need for make equity raise imminent.
In near term, the acquisition will not be financially accretive, and lead to a hit on Net worth (via Goodwill write-off) and CET-1 (due to capital allocation).
The indicated integration cost of Rs 15 Bn over next 2 years could need for make equity raise imminent.
Follow us at @ICICI_Direct for more such Equity market insights and updates.
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