Govt to auction half its holding in Axis Bank in Rs 1,290-1,357 price band

Written by fe Bureau | Mumbai | Updated: Mar 21 2014, 07:03am hrs
Axis BankThe govt plans to sell 4.22 crore shares in the country?s third largest private sector lender. Reuters
The government on Thursday kicked off the process of selling nearly half of its 20.7% stake in Axis Bank held via the Specified Undertaking of Unit Trust of India (SUUTI). The government plans to sell 4.22 crore shares, representing a stake of 9%, in the countrys third largest private sector lender on Friday, valuing the deal at R5,443-5,726 crore ($892-$938 million based on the current exchange rate).

The price band has been set at R1,290-1,357.35 per share and institutional investors can bid till 10.30 PM on Thursday. The bids are to be executed on Friday via the block trading facility available on stock exchanges.

The Axis Bank scrip ended at R1,356.85 on the BSE Thursday, down R29.30, or 2.11%, from the previous close. The stock has touched a high of R1,549 and a low of R764 in the last one year.

Sources in the know told FE that the share auction may see strong participation from domestic institutional investors (DIIs) such as insurance companies and private equity firms, as the ownership of foreign institutional investors (FIIs) is very close to the 49%-limit.

The auction process is pre-arranged. We foresee widespread participation but expect domestic institutions like insurance companies and private institutions to be the frontrunners in the share sale, said an investment banker on condition of anonymity.

In December 2013, the Cabinet Committee on Economic Affairs approved raising the foreign investment limit in Axis Bank to 62% from 49%, subject to the aggregate foreign institutional investors holding not exceeding 49% of the paid-up equity.

Foreign institutional investors (FIIs) hold 43.18% in the Mumbai-based private sector lender as on quarter ending December 2013, stock exchange data showed.

Analysts have a positive view on Axis Bank, citing valuation comfort and a strong Q3FY14 performance. The bank achieved a 19% year-on-year (y-o-y) growth in net profit and posted a net interest margin of 3.71%, up 14 basis points (bps) from the corresponding period last year. Gross NPA stood at 1.25% of total advances.

The bank continues to do well on the liability side while the focus to shift to retail can help cushion the impact of a sharp deterioration in the infrastructure portfolio, Kotak Institutional Equities wrote in a recent report.

The stock trades at a one-year forward price-to-book of 1.91 times compared with 2.01 times for ICICI Bank, the largest private sector lender and 4.75 times for HDFC Bank. Forty nine analysts have a buy rating on Axis Bank, while 14 analysts have a hold rating and six have a sell rating on the stock, according to analysts polled by Bloomberg.

The government had earlier planned to sell about 6% in Axis Bank that would fetch Rs 3,000 crore by March 24-25 but the stake sale has been brought forward. After the Axis Bank sale and the launch of the CPSE ETF, the government may have raised about Rs 34,000-36,000 crore by way of stake sales, share buybacks and special dividends. The Centre had hoped to raise Rs 54,000 crore this fiscal but later reduced its estimates to Rs 36,925 crore in the interim budget.