MOSL: AXIS BANK (Upgrade to Buy)-Strong capitalization to fast-track recovery
Axis Bank: Strong capitalization to fast-track recovery; Upgrading to Buy
(AXSB IN, Mkt Cap USD20.2b, CMP INR545, TP INR680, 25% Upside, Upgrade to Buy)
- Event: Axis Bank’s (AXSB) board has approved a capital raising plan amounting to USD1.79b (INR116.26b) to provide the necessary growth capital to the bank and support asset quality clean-up. Of the approved amount, USD1.4b (INR90.63b) is proposed to be raised via preferential issue of equity shares at INR525/share, while the remaining USD396.1m (INR25.63b) would be raised via warrants, which can be converted into equity shares at INR565/share.
- Investing entities: Bain Capital will invest USD1.06b (INR68.54b) – USD710m (INR45.94b) would be in the form of equity and the balance USD349.3m (INR22.6b) via warrants. LIC will invest USD244.7m (INR15.83b) directly via the equity route. The balance USD446.1m (INR28.86b) via equity and USD46.8m (INR3.03b) via warrants would be invested by several other institutional funds.
- Impact: FY19E BV (increase by 10%), Tier-1 (increase by 170bp) and dilution of 9.1% on existing equity base: We expect warrant conversion to take place in FY19, and thus, estimate AXSB’s FY18E/19E book value to increase by 9%/10%. This will also help improve the bank’s Tier-I ratio by 170bp to 13.8% by FY18E, providing it with the necessary growth capital to pursue business opportunities. The entire capital raising will eventually result in dilution of 9.1% on the existing capital base (8.3% on post-issue basis).
Axis Bank is a consumer and corporate bank engaged in operations in India. Co. maintains activities in both retail and corporate banking. Co. is also active as a mutual fund in the Indian capital market. Co., through its servicing and distribution network provides a complete range of services to its investors. As of March 31, 2011, Co. operated 1,390 branches and extension counters, as well as a network of approximately 6,270 ATMs. Co. also has branches in Singapore, Hong Kong, Shanghai, the UAE, and Sri Lanka. Co. provides services in consumer and corporate banking, NRIs, Retail loans, treasury services, Capital market services and Financial Advisory services.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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