30 March 2022 India | Private Sector Banks | Company Update

AXIS Bank | BUY

Acquires Citi’s India consumer business – quality franchise in its
fold; upsides contingent to customer retention
Axis Bank today announced the acquisition of Citi’s India consumer business for cash Sameer Bhise
sameer.bhise@jmfl.com | Tel: (91 22) 66303489
consideration of USD 1.6bn. Axis Bank will pay INR 123.25bn in cash and will in turn receive
Akshay Jain
INR 274bn in loans of which 32% is credit cards, 36% is mortgages, balance is PL, Small akshay.jain@jmfl.com | Tel: (91 22) 66303099
business loans and CVs). Axis also gets INR 502bn of deposits (of which 81% is CASA) and a Ankit Bihani
wealth AUM of INR 1.1trn. The acquisition gives Axis access to 1.2mn retail customers and ankit.bihani@jmfl.com | Tel: (91 22) 62241881
rd
makes it the 3 largest credit card player (though overlap with Axis Bank’s own customers Bunny Babjee
unknown). The transaction is expected to close in 9-12months and purchase consideration is bunny.babjee@jmfl.com | Tel: (91 22) 66303263

subject to protection clauses for Axis Bank depending on the portfolio parameters holding Anuj Narula
anuj.narula@jmfl.com | Tel: (91 22) 62241877
within desired levels till then. The loan book forms c.4% of Axis Bank’s loan book and will
also entail onboarding 3600 employees of Citibank. The transaction is likely to result into Recommendation and Price Target
180bps of impact on CET1 of Axis Bank (15.3% as of 3Q22) due to charge-off of goodwill Current Reco. BUY
created due to the acquisition. Additionally, another 50bps of capital requirement will be Previous Reco. BUY
Current Price Target (12M) 950
towards the increase in asset base.
Upside/(Downside) 26.6%
Previous Price Target 950
We believe Axis Bank has acquired a quality franchise and gives it a strong presence in the
Change 0.0%
affluent, upwardly mobile retail consumer base in top 8 cities of the country. At the same
time, we also note that such a franchise (normalized RoA >2.25-2.50% with a strong fee Key Data – AXSB IN
income proposition) would not have come at an inexpensive price (including integration costs Current Market Price INR750
and incremental equity allocation – we believe acquisition price values the business between Market cap (bn) INR2,303.7/US$30.3
2.5-3.0x networth). In our view, the business in current state will accrete c.20bps to Axis Free Float 85%
Shares in issue (mn) 3,063.7
Bank’s NIMs, aid quality of deposits/LCR management (+200bps CASA increase) and add 10- Diluted share (mn)
12bps of RoA (excluding integration costs). However, these outcomes are subject to quality 3-mon avg daily val (mn) INR8,795.9/US$115.9
of customer base/employees/engagement holding up as well as Axis Bank’s ability to manage 52-week range 881/621
Sensex/Nifty 58,684/17,498
a smooth transition and this remains a key monitorable. In the interim, we see Axis Bank
INR/US$ 75.9
delivering a steady earnings recovery given a fortified balance sheet and expanding its
organic retail franchise. We see the bank progressing well towards delivering RoA of 1.5% by Price Performance
FY24E on a pre-integration basis. % 1M 6M 12M
Absolute 1.1 -2.1 7.9
We keep our earnings estimates unchanged and will update the same post the bank’s Relative* -3.1 -1.4 -8.9
4QFY22/FY22 earnings. However, if we were to incorporate the disclosed normalized * To the BSE Sensex
earnings of the Citi portfolio, integration costs and the impending goodwill discharge impact,
our BVPS expectations for FY23E/FY24E would be revised to INR 373/434 per share vs INR
410/465 per share currently (-9%/-6% impact) and RoA/RoE of 0.5%/5.8% for FY23E and
1.6%/19.2% for FY24E. Maintain BUY with an unchanged TP of INR 950 (valuing the core
bank at 2.0x FY24E BVPS).
 What does the acquisition bring to the table? Axis Bank will get INR 274bn in loans of
which 32% is credit cards, 36% is mortgages, balance is PL, Small business loans and
CVs). Axis also gets INR 502bn of deposits (of which 81% is CASA) and access to
rd
1,600+Suvidha corporates. The acquisition makes it the 3 largest credit card player
increasing its credit card loans market share to 15.52% (+372bps due to Citi). Further,
Axis gets access to Citi’s 1.2mn retail customers and strong wealth management

Financial Summary (INR mn)

Y/E March FY20A FY21A FY22E FY23E FY24E
Net Profit 16,272 65,885 124,104 180,269 217,767
JM Financial Research is also available on:
Net Profit (YoY) (%) -65.2% 304.9% 88.4% 45.3% 20.8%
Bloomberg - JMFR <GO>,
Assets (YoY) (%) 14.3% 7.8% 13.7% 16.7% 18.1%
Thomson Publisher & Reuters,
ROA (%) 0.2% 0.7% 1.2% 1.5% 1.5%
ROE (%) 2.1% 7.1% 11.6% 15.2% 16.2%
S&P Capital IQ, FactSet and Visible Alpha
EPS 5.8 21.5 40.5 58.8 71.1
EPS (YoY) (%) -68.3% 272.9% 88.4% 45.3% 20.8% Please see Appendix I at the end of this
PE (x) 130.1 34.9 18.5 12.7 10.6 report for Important Disclosures and
BV 301 332 364 410 465 Disclaimers and Research Analyst
BV (YoY) (%) 16.1% 10.2% 9.8% 12.7% 13.4% Certification.
P/BV (x) 2.49 2.26 2.06 1.83 1.61
Source: Company data, JM Financial. Note: Valuations as of 30/Mar/2022

JM Financial Institutional Securities Limited

AXIS Bank 30 March 2022

franchise with an AUM of INR 1.1trn.

 What does it cost? In addition to the cash consideration of INR 123.25bn (charge of to
net worth in form of goodwill), Axis bank will also need to consider an incremental equity
allocation of INR 34.5bn (@13% of incremental RWAs). The goodwill write-off and
increase in asset base will lead to impact of 180bps and 50bps to CET1 of Axis bank.
Further, Axis also has estimated a post-tax integration cost of INR 15bn (c.80% due to
Citi support services post-merger) over 2 year post the transaction is completed. Axis bank
will also have to incur higher interest expenses on the SA balance taken over from Citi
(Axis base SA rate at 3.0% vs 2.5% for Citi).

 Our view: We believe Axis Bank has acquired a quality franchise and gives it strong
presence in the affluent, upwardly mobile retail consumer base in top 8 cities of the
country. At the same time, we also note that such a franchise (normalized RoA >2.25-
2.50% with a strong fee income proposition) would not have come at an inexpensive
price (including integration costs and incremental equity allocation – we believe
acquisition price values the business between 2.5-3.0x networth). In our view, the
business in current state will accrete c.20bps to Axis Bank’s NIMs, aid quality of
deposits/LCR management (+200bps CASA increase) and add 10-12bps of RoA
(excluding integration costs). However, these outcomes are subject to quality of customer
base/employees/engagement holding up as well as Axis Bank’s ability to manage a
smooth transition and this remains a key monitorable. In the interim, we see Axis Bank
delivering a steady earnings recovery given a fortified balance sheet and expanding its
organic retail franchise. We see the bank progressing well towards delivering RoA of
1.5% by FY24E on a pre-integration basis. Maintain BUY with an unchanged TP of INR
950 (valuing the core bank at 2.0x FY24E BVPS).

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AXIS Bank 30 March 2022

Exhibit 1. Overview of Citi India Consumer Business

Source: Company, JM Financial

Exhibit 2. Overview of merged Axis + Citi credit card business

Source: Company, JM Financial, 1,2 – Data for Jan-Dec’21

Exhibit 3. Overview of merged Axis + Citi Liability Profile

Source: Company, JM Financial

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AXIS Bank 30 March 2022

Exhibit 4. Overview of merged Axis + Citi Wealth Management franchise

Source: Company, JM Financial

Exhibit 5. Pro-forma merged financials

Source: Company, JM Financial, Data as of Dec’21

Exhibit 6. Pro-forma standalone Citi Business financials

Source: Company, JM Financial, 1- for CY end Dec’21; 2 – post elimination of group overhead adj; 3 – post elimination of group overhead and normalized credit loss; 5 – one time over and above integration costs;
6 - % of total asset and undeployed cash; 7 – theoretical equity @ 13% charge on RWAs

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AXIS Bank 30 March 2022

Financial Tables (Standalone)

Profit & Loss (INR mn) Balance Sheet (INR mn)
Y/E March FY20A FY21A FY22E FY23E FY24E Y/E March FY20A FY21A FY22E FY23E FY24E
Net Interest Income 252,062 292,391 329,523 378,471 449,069 Equity Capital 5,643 6,127 6,127 6,127 6,127
Profit on Investments 21,723 23,023 17,000 9,003 9,003 Reserves & Surplus 843,835 1,009,903 1,109,496 1,250,703 1,419,450
Exchange Income 15,745 15,781 18,439 21,757 26,109 Deposits 6,401,049 6,979,853 8,026,831 9,391,392 11,175,757
Fee & Other Income 117,898 109,578 118,022 148,020 175,397 Borrowings 1,479,541 1,428,732 1,587,100 1,861,469 2,178,024
Non-Interest Income 155,366 148,382 153,461 178,781 210,509 Other Liabilities 421,579 443,362 487,698 575,483 679,071
Total Income 407,428 440,773 482,984 557,252 659,578 Total Liabilities 9,151,648 9,867,976 11,217,252 13,085,175 15,458,428
Operating Expenses 173,046 183,751 231,151 258,421 296,890 Investments 1,567,343 2,261,196 2,626,800 3,187,949 3,780,533
Pre-provisioning Profits 234,381 257,022 251,833 298,831 362,688 Net Advances 5,714,242 6,143,994 6,881,273 8,051,090 9,500,286
Loan-Loss Provisions 142,069 146,629 85,962 57,892 71,632 Cash & Equivalents 972,683 617,298 572,425 679,396 805,740
Provisions on Investments 1,360 13,291 0 0 0 Fixed Assets 43,129 42,450 78,521 91,596 108,209
Others Provisions 41,911 9,044 0 0 0 Other Assets 854,252 803,038 1,058,234 1,075,144 1,263,660
Total Provisions 185,339 168,963 85,962 57,892 71,632 Total Assets 9,151,648 9,867,976 11,217,252 13,085,175 15,458,428
PBT 49,042 88,058 165,871 240,939 291,056 Source: Company, JM Financial
Tax 32,770 22,174 41,767 60,669 73,289
PAT (Pre-Extraordinaries) 16,272 65,885 124,104 180,269 217,767
Extra ordinaries (Net of Tax) 0 0 0 0 0
Reported Profits 16,272 65,885 124,104 180,269 217,767
Dividend paid 0 0 24,510 39,063 49,020
Retained Profits 16,272 65,885 99,594 141,207 168,747
Source: Company, JM Financial

Key Ratios Dupont Analysis

Y/E March FY20A FY21A FY22E FY23E FY24E Y/E March FY20A FY21A FY22E FY23E FY24E
Growth (YoY) (%) NII / Assets 2.94% 3.07% 3.13% 3.11% 3.15%
Deposits 16.7% 9.0% 15.0% 17.0% 19.0% Other Income / Assets 1.81% 1.56% 1.46% 1.47% 1.47%
Advances 15.5% 7.5% 12.0% 17.0% 18.0% Total Income / Assets 4.75% 4.63% 4.58% 4.59% 4.62%
Total Assets 14.3% 7.8% 13.7% 16.7% 18.1% Cost / Assets 2.02% 1.93% 2.19% 2.13% 2.08%
NII 16.1% 16.0% 12.7% 14.9% 18.7% PBP / Assets 2.73% 2.70% 2.39% 2.46% 2.54%
Non-interest Income 18.3% -4.5% 3.4% 16.5% 17.7% Provisions / Assets 2.16% 1.78% 0.82% 0.48% 0.50%
Operating Expenses 9.3% 6.2% 25.8% 11.8% 14.9% PBT / Assets 0.57% 0.93% 1.57% 1.98% 2.04%
Operating Profits 23.3% 9.7% -2.0% 18.7% 21.4% Tax rate 66.8% 25.2% 25.2% 25.2% 25.2%
Core Operating profit 16.5% 10.0% 0.4% 23.4% 22.0% ROA 0.19% 0.69% 1.18% 1.48% 1.53%
Provisions 54.1% -8.8% -49.1% -32.7% 23.7% RoRWAs 0.28% 1.06% 1.83% 2.30% 2.37%
Reported PAT -65.2% 304.9% 88.4% 45.3% 20.8% Leverage 10.8 9.7 10.1 10.4 10.8
Yields / Margins (%) ROE 2.1% 7.1% 11.6% 15.2% 16.2%
Interest Spread 2.99% 3.14% 3.23% 3.24% 3.24% Source: Company, JM Financial
NIM 3.23% 3.38% 3.45% 3.44% 3.45%
Profitability (%)
Non-IR to Income 38.1% 33.7% 31.8% 32.1% 31.9% Valuations
Cost to Income 42.5% 41.7% 47.9% 46.4% 45.0% Y/E March FY20A FY21A FY22E FY23E FY24E
ROA 0.19% 0.69% 1.18% 1.48% 1.53% Shares in Issue 2,821.7 3,063.7 3,063.7 3,063.7 3,063.7
ROE 2.1% 7.1% 11.6% 15.2% 16.2% EPS (INR) 5.8 21.5 40.5 58.8 71.1
Assets Quality (%) EPS (YoY) (%) -68.3% 272.9% 88.4% 45.3% 20.8%
Slippages 4.12% 3.07% 2.25% 1.90% 1.75% PER (x) 130.1 34.9 18.5 12.7 10.6
Gross NPA 5.10% 4.00% 3.72% 2.85% 2.54% BV (INR) 301 332 364 410 465
Net NPAs 1.64% 1.14% 0.96% 0.73% 0.65% BV (YoY) (%) 16.1% 10.2% 9.8% 12.7% 13.4%
Provision Coverage 69.0% 72.4% 75.0% 75.0% 75.0% ABV (INR) 300 332 364 410 465
Specific LLP 2.39% 2.06% 1.19% 0.60% 0.63% ABV (YoY) (%) 19.9% 10.5% 9.8% 12.7% 13.4%
Net NPAs / Networth 11.0% 6.9% 5.9% 4.7% 4.3% P/BV (x) 2.49 2.26 2.06 1.83 1.61
Capital Adequacy (%) P/ABV (x) 2.50 2.26 2.06 1.83 1.61
Tier I 14.49% 16.47% 15.87% 15.28% 14.63% DPS (INR) 0.0 0.0 8.0 12.8 16.0
CAR 17.53% 19.12% 18.75% 18.22% 17.52% Div. yield (%) 0.0% 0.0% 1.1% 1.7% 2.1%
Source: Company, JM Financial Source: Company, JM Financial

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AXIS Bank 30 March 2022

History of Recommendation and Target Price Recommendation History

Date Recommendation Target Price % Chg.

25-Apr-19 Buy 865

30-Jul-19 Buy 840 -2.9

23-Sep-19 Buy 850 1.2

23-Oct-19 Buy 825 -2.9

9-Jan-20 Buy 920 11.5

22-Jan-20 Buy 920 0.0

11-Mar-20 Buy 800 -13.0

13-Apr-20 Hold 460 -42.5

29-Apr-20 Hold 460 0.0

21-Jul-20 Hold 460 0.0

28-Oct-20 Hold 530 15.2

11-Jan-21 Buy 750 41.5

27-Jan-21 Buy 770 2.7

27-Apr-21 Buy 870 13.0

26-Jul-21 Buy 880 1.1

27-Oct-21 Buy 950 8.0

24-Jan-22 Buy 950 0.0

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AXIS Bank 30 March 2022

APPENDIX I

JM Financial Inst itut ional Secur ities Lim ited

Corporate Identity Number: U67100MH2017PLC296081
Member of BSE Ltd., National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd.
SEBI Registration Nos.: Stock Broker - INZ000163434, Research Analyst – INH000000610
Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.
Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: jmfinancial.research@jmfl.com | www.jmfl.com
Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: sunny.shah@jmfl.com

Definition of ratings
Rating Meaning
Buy Total expected returns of more than 10% for large-cap stocks* and REITs and more than 15% for all other stocks, over the next twelve
months. Total expected return includes dividend yields.
Hold Price expected to move in the range of 10% downside to 10% upside from the current market price for large-cap* stocks and REITs and
in the range of 10% downside to 15% upside from the current market price for all other stocks, over the next twelve months.
Sell Price expected to move downwards by more than 10% from the current market price over the next twelve months.
* Large-cap stocks refer to securities with market capitalisation in excess of INR200bn. REIT refers to Real Estate Investment Trusts.
Research Analyst(s) Certification

The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that:

All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and

No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research
report.

Important Disclosures

This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to provide information about the
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AXIS Bank 30 March 2022

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