Axis Bank to acquire Enam Sec.: BofA ML

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Axis Bank Ltd. — Axis Bk to acquire Enam Sec.

Axis to acquire Enam Securities in all stock deal
Axis bank outlined its plans of acquiring Enam Securities, the investment banking
and institutional broking arm of Enam financial in an all stock deal. Enam’s asset
management business will not be part of the deal. Post merger, which is subject
to regulatory approval, Enam securities will be a 100% subsidiary of the bank.
The share swap ratio for the deal has been fixed at 5.7:1 (Axis will issue 5.7
shares for every Enam share held).


Deal expensive; but may become earnings accretive
In effect, Axis has paid Rs20.7bn for Enam Securities which values Enam at +35x
on trailing FY10 earnings and +20x Fy11E earnings (extrapolating the earnings
done YTD). But as it is entirely an all stock deal with minimal dilution (3.5%), it
may end up being marginally earnings accretive (~ 1%) if Axis able to ramp up
the capital markets business by leveraging its client base. Moreover, it enables
Axis to offer its clients a full product suite, enhancing its competitive edge as a
bank.

Maintain Neutral and PO
At this juncture we maintain our Neutral and PO of Rs1700 (US$39 per GDR).
The upside from the deal may arise when we begin getting more visibility on the
benefits of the deal flowing through. In the interim, the key drivers for the stock
are still likely to be its banking business; earnings growth trajectory and NPL
outlook which should see some improvement.