Acquisition buzz lifts Axis Bank after Shikha Sharma shock
Some analysts see Axis Bank as a potential acquisition target of Kotak Mahindra Bank, but others continue to prefer Axis Bank to ICICI Bank
Mumbai: Shares of Axis Bank Ltd on Tuesday gained 5.4%, the most in more than five months, on speculation that India’s third largest private lender could be a potential acquisition target after its board accepted managing director Shikha Sharma’s plea to cut her fourth three-year term to seven months.
Sharma, who joined Axis Bank in 2009, will now step down on 31 December. Her fourth term as managing director and chief executive was originally set to end in June 2021.
“Our assessment suggests that Axis Bank will have to look for an external CEO. We believe this presents a great opportunity for Kotak Bank to acquire one of the largest liability/retail asset franchises,” Nomura Financial Advisory and Securities (India) Pvt. Ltd said in a note.
Shares of Axis Bank touched a 16-month high of Rs627.50 on 23 January, but have eroded 13% since then.
In an interview to Bloomberg in November, Kotak Mahindra Bank managing director Uday Kotak had said the bank was open to acquisitions.
“We are pretty open to acquisitions as long as they make strategic sense, are value-accretive and are a good cultural fit,” Kotak said.
According to Nomura, at current prices, the deal would be more than 40% accretive to the EPS/BPS (earnings per share/book value per share) of Kotak Bank.
“This should make it possible for Kotak Bank to offer some premium to Axis Bank shareholders to make the deal attractive to Axis Bank minority shareholders,” Nomura analysts said, adding that the deal would be more than 25% accretive for Kotak Bank even after paying a 10-30% premium for Axis Bank.
A Kotak Mahindra Bank spokesperson said the bank does not comment on rumours and speculation. An Axis Bank spokesperson did not respond to an email seeking comment.
Jefferies India Pvt. Ltd said it continues to prefer Axis Bank to ICICI Bank Ltd.
“We recommend a positive outlook for the stock. The stock has corrected 11% in the last three months vs ~3% correction for the broader market index,” Jefferies analysts said in a note on Monday.
“We believe this captures a fair amount of bad news in the Mar ’18 quarter. If indeed the bank undertakes a clean-up exercise, we believe the H2FY19 outlook and beyond should improve dramatically,” Jefferies added.
Larger rival ICICI Bank also saw its shares rise 3% on Tuesday, taking respite from rating agency Fitch Ratings’ comments on Monday that the bank’s rating is underpinned by relatively strong capitalization and profitability, and its core capitalisation would remain strong even if the Videocon loan in question were completely written off.
The ratings agency, however, said the allegations did pose “reputational risks” to the bank.
The allegation relates to a loan to Videocon Group, whose controlling shareholder co-founded a separate company with the husband of ICICI Bank’s CEO Chanda Kochhar. A significant portion of the loan has since become non-performing.
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