Axis Bank trades lower on nod to Rs 1,612-cr cash infusion into Max Life

Shares of Axis Bank were down 0.24 percent in early trade on August 10, following approval to the proposal to infuse Rs 1,612 crore into Max Life Insurance Company.

At 10:17am, the Axis Bank stock was trading 0.24 percent lower at Rs 948 on the NSE.

The Infusion Plan

The Axis Bank board on August 9 gave its nod to Rs 1,612-crore infusion in Max Life Insurance Company Limited, a material subsidiary of Max Financial Services Limited. The bank said the Acquisitions, Divestments and Merger Committee has approved the proposal for the infusion through preferential allotment.

“Axis Bank Limited and its subsidiaries, i.e., Axis Securities Limited and Axis Capital Limited (together referred to as Axis Entities) have entered into agreements (including amendments thereto) with Max Financial Services Limited, with regard to acquisition of equity stake of Max Life Insurance Company Limited (Max Life) and matters incidental thereto,” Axis Bank’s exchange filing said.

Also Read: Axis Bank approves Rs 1,612 crore infusion in Max Life through preferential allotment

“…we would now like to inform you that the Acquisitions, Divestments and Merger Committee of the Board of Directors of the Bank at their meeting held on August 9, 2023 has approved the proposal for the Axis Bank to infuse Rs. 1,612 crores in Max Life through preferential allotment, resulting in Axis Bank’s direct stake in Max Life increasing to 16.22 percent and the collective stake of Axis Entities increasing to 19.02 percent,” Axis Bank further stated in the exchange filing.

Way ahead for Axis Bank

The Bank will now enter into a Share Subscription Agreement with Max Life for proposed acquisition through subscription to the Preferential Issue of 14,25,79,161 fully paid-up equity shares of face value of Rs. 10 each, at a fair market value of Rs. 113.06 per share (arrived at as per extant regulations and including a share premium of Rs. 103.06 per equity share), Axis Bank said.

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The proposed acquisition, the bank said, would strengthen its position in life insurance business. Post completion of this acquisition, it will increase the total holding of the bank (along with its subsidiaries e.g. Axis Securities Ltd. and Axis Capital Ltd.) in Max Life from 12.99 percent to 19.02 percent, Axis Bank informed stock exchanges.

Also Read: Axis Bank sees 34.8% attrition rate in FY23, higher than FY22 and FY21

The proposed acquisition would be done at fair market value using Discounted Cash Flow (DCF) method, Axis Bank stated. The indicative time period for completion of the acquisition is four to six months. The completion of the acquisition would depend upon receipt of regulatory approvals from IRDAI, PFRDA, CCI and others. The bank has requisite approval from the Reserve Bank of India for the proposed acquisition. Max Life Insurance Company Limited, incorporated on July 11, 2000, recorded a turnover of Rs 25,342 crore, Rs 22,414 crore, and Rs 19,018 crore in FY23, FY22 and FY21 respectively.

Brokerage Views on the deal

CLSA has given a ‘buy’ rating to the Axis Bank stock with a target price of Rs 1025 per share post the approval of Max Life infusion deal. The brokerage firm further stated that, “the bank reported a steady Q1FY24 with VNB margin up 1 percent YoY. Healthy traction in retail protection has been seen followed by non-par savings and proprietary channel.”

Brokerage firm Jefferies has given a ‘buy’ rating to Axis Bank with a target price of Rs 800 per share. On the Max deal the brokerage firm further stated that, “Axis Bank will raise stake from 13 percent to 19 percent for Rs 1600 crore, tad below market capitalization implied value, improving contribution can aid growth, will track margins going ahead.”

Stock Performance

Axis Bank stock has given a return of 9.31 percent over the last six months. The stock has consequently outperformed the benchmark Nifty Bank index that has given a return of 6.93 percent over the same duration.

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