Nomura Research has expressed surprise at Axis Bank’s potential initiation of an equity capital raise, especially given the management’s previous stance against raising capital in the near future.
“We note that the approval sought at the board meeting may also just be an enabling provision (which is a procedural approval taken by several banks from their respective boards at the beginning of a new FY), though Axis has historically not done this. We await clarity on this along with the results on 24 April,” the foreign brokerage said in a note.
As of the December quarter, Axis Bank’s CET1 stood at 13.7 percent against the regulatory minimum of 8 percent, while other private sector banks such as ICICI Bank, HDFC Bank, and Kotak Mahindra Bank are at 16 percent, 16.3 percent, and 20.1 percent, respectively.
“Our calculation suggests that for every 100 basis points (bp) of extra CET1, Axis Bank will have to raise Rs 9,900 crore in equity capital. This would result in a negative FY26 RoE impact of 90 bps. In such a scenario, FY26 EPS gets diluted by 3 percent while the FY26 BVPS would see 1.5 percent accretion,” Nomura said.
In an exchange filing on April 18, Axis Bank notified that at its board meeting on April 24 (for Q4 FY24 results), it will also be evaluating a potential equity capital raise via QIP/ADR issuance/preferential allotment ‘at an appropriate time’.
Nomura stated that the near-term risk of increased equity supply could weigh on share price performance, especially given recent significant block deals (December 2023 and April 2024). They await clarification on whether the approval from the board meeting is merely procedural, as seen in past fiscal years, or if it holds more substantial implications. Further details are anticipated from management post the April 24 results.
Despite this development, Axis Bank remains a top pick for Nomura. They will closely monitor any loan growth pressures stemming from deposit mobilisation challenges, particularly given its high loan-to-deposit ratio (93 percent as of Q3 FY24, compared to 80 percent for the sector overall).
Nomura believes that current valuations account for much of these concerns, with Axis Bank trading at 1.5x FY26 book value per share (BVPS) compared to 1.8x/2.1x for HDFC Bank and ICICI Bank, respectively. Despite underperforming the broader Bank Nifty index by 6 percent year-to-date, Nomura expects Axis Bank to achieve around 18 percent return on equity (RoE) over FY25-26.
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