Citbank India's consumer business acquisition by Axis Bank, India's fourth-biggest private-sector lender by market value, had a big impact on its earnings for the previous financial year 2022-23 (FY23). The acquisition charge took away most of the gains that came on account of net interest margin (NIM) expansion (30 basis points year-on-year) and lower credit costs (60 basis points), according to a research note by Kotak Institutional Equities.
The progress of the integration with Citi from an HR-related and operating expenses-related perspective, along with pressure on NIM, would be the key monitorable for this fiscal FY24, Kotak noted.
However, analysts at Kotak said that the full impact of Citi's acquisition would be reflected in FY2024. "Overall, we should not see any major surprises for the bank for FY2024-25," the brokerage said.
Due to its undemanding valuations, analyst targets on the counter suggest a potential upside of 15 percent from the current market levels.
Axis Bank shares are trading almost flat at Rs 949.80 on Wednesday. The bank stock declined 2.50 percent in the last one month, while it rose just 1 percent on a year-to-date basis. In the last one year, shares of Axis Bank have rallied 40.47 percent.
Key takeaways, as per the broking house, from the annual report include—
1) Citi’s acquisition had a big impact on earnings for FY2023. The bank recorded Rs 12,500 crore as a one-time charge for this acquisition, of which Rs 11,200 crore pertains to goodwill amortization.
2) Solid net interest income (NII) growth of 30 percent yoy, led by 20 percent yoy loan growth and 30 bps yoy NIM expansion.
3) Provisions declined 55 percent yoy, led by lower net slippages resulting in lower provisions and better trends on recovery from written-off loans.
4) PBT in the corporate/wholesale and retail banking division has hit an all-time high as all business units have fully recovered from the corporate NPL and Covid-related cycle.
5) Net NPL to net worth (3 percent) and net NPL to operating profit (<20 percent) are closer to the best in its history.
6) Within subsidiaries, Axis Finance had a strong year, while earnings growth was slower in the AMC business
"We like Axis Bank as a good business to own among the large banks. However, we do see a lower probability of valuations fully converging with HDFC Bank/ICICI Bank in the near term," Kotak said.
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