Axis acquires Citi’s Indian Consumer Business. Retention is the key.

Target Date - March 31, 2023

Finally after months of speculation, Axis has formally announced the acquisition.

What is Axis acquiring?

  • Consumer banking businesses of Citibank India – credit cards, retail banking, wealth management and consumer loans.
  • Citi’s non-banking financial company, Citicorp Finance (India) Ltd – Commercial Vehicle loans, Construction Equipment Loans and Personal Loans.
  • Access to Citi’s 7 offices, 21 branches and 499 ATMs across 18 cities.
  • Approximately 3600 consumer business focused employees of Citi.

What does Axis expects to gain out of the acquisition?

More customers and their business.

Citi has built a niche customer base over the years, which is envied by every other bank present in India. It’s customer base is estimated at 12 lakh+.

Axis hopes to use this customer base to enhance it’s premium customer profile.

Checkout the following picture sourced from TOI for what Axis is adding to the Balance Sheet from the acquisition.

Why is Citi selling?

In April last year, Citigroup had said it will exit consumer businesses in 13 countries including India as it focuses on four wealth centres in Singapore, Hong Kong, the UAE and London.

How much is Axis paying for the acquisition?

  • Upto Rs 12,325 crore as cash consideration to Citi;
  • Estimated risk capital of Rs 3,450 crore to be carved out for the regulatory requirements on the acquired assets; and
  • Estimated integration cost of Rs 1,500 crore (post tax) to be spent over 2 years.

As per Axis, the acquisition consideration (including cash and risk capital) implies a P/E of 18.7x on the normalised profits of the acquired business.

Seems like a good acquisition at fair valuation. Bullish?

My only concern how many of these customers continue with Axis and even if they do, what’s the incremental business that they provide.

Reason –

  • Citi is a status symbol. Axis is not.
  • Citi had a super customer service culture. Axis in current state has lots to catch up.
  • Citi is a global bank and hence could structure many more services/ rewards/ experiences to it’s customers compared to Axis.
  • Citi’s employees may be joining Axis but they are very different organisations. How many continue and with same passion – remains to be seen.
  • Citi’s customers in all likelihood will be banking with others as well. With Citi’s experience gone, Axis may become one amongst many.

In my personal view – analysts will ask and Axis management will highlight many advantages of the deal during initial few quarters.

Afterwards, everyone will forget and only focus on Axis’s consolidated performance.

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