Axis Bank shares may give 30% return in long term, says Prabhudas Lilladher

Axis Bank shares have been in base building mode after ushering in new year 2023. In YTD time, Axis Bank share price has slipped from around ₹942 per share to ₹845 per share levels, logging more than 10 per cent loss in 2023. However, Prabhudas Lilladher believes that Axis Bank shares are out of base building mode and it is well set to surge up to ₹1,100 apiece levels in long term, delivering to the tune of 30 per cent return to its positional shareholders.

Highlighting the reason for being bullish on Axis Bank shares, Prabhudas Lilladher research report said, “Axis-Citi deal concluded on 1stMarch’23 for a consideration of Rs116bn. While acquired asset portfolio at Rs273bn was largely intact (post deal announcement in Mar’22), deposits saw a rundown of Rs102bn to Rs399bn. Hence the deal value saw Rs7.2bn reduction. Capital consumption was lower at 177bps than expected 230bps, hence AXSB’s CET-I ratio would be higher at ~14% by Q4FY23 (estimate ~13%) providing cushion for future growth. Although a <=15% loan CAGR (our estimates) could be self-funded, growing at 20% entail a capital raise. Immediate benefits of acquisition include addition of superior quality CC portfolio (Rs89bn) coupled with CASA boost of 150bps.”

The brokerage went on to add that due to Axis Citi deal, Q4FY23 P&L would be charged with: (i) goodwill amortization (below the line) (ii) alignment to a more conservative provision policy of AXSB (iii) transitions cost, banker fees, duties/taxes. Adjusted for goodwill, Q4FY23E PAT could reduce by Rs39bn. Steady state PAT for CITI business is Rs8.0-8.4bn, during transitory period of 18 months, majority of integration cost of Rs15bn will be spread linearly. After integration, bank expects opex optimization of 30-40% led by leverage benefits from cross sell and technology. Hence acquisition is expected to turn profitable from H2FY25E. For FY24/25E, we see a ₹2bn/Rs3bn loss/profit for CITI and accordingly our AXSB PAT estimates are changed by -1%/+1%.

“We expect this business to turn profitable by H2FY25E given (i) post-tax integration costs of Rs15bn and (ii) opex optimization would happen only post integration. As change in FY23E/24E/25E PAT is ~1%, our multiple/TP basis Sep’24ABV are unchanged at 2.3x/Rs1,100. Retain BUY,” said Prabhudas Lilladher report.

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