Axis Bank slashes Enam valuation by a third

Axis Bank slashed by a third the valuation of Enam Securities' investment banking business it had agreed to buy in November 2010, ending a 17-month-long wait to boost fee income. It also added muscle to its mutual fund business by getting the UK's asset manager Schroders as a joint venture partner.

The third-biggest private sector lender, which faced questions from the regulator on the stock-swap transaction, reduced the value of Enam's business to Rs 1,396 crore, from Rs 2,070 crore agreed when first proposed. "The relook at the valuation was not driven by regulatory guidance," said Shikha Sharma, MD & CEO, Axis Bank. "The market valuation since then has changed and hence the change in valuation.''

Enam Securities Chairman Vallabh Bhanshali said the revised transaction is still attractive. "The deal was good for all in its current form as well," Bhanshali said in an emailed response.

Axis will now give 1.2 crore shares to Enam's shareholders, down from 1.38 crore. During the period, Axis shares have fallen about 25% to Rs 1,103 while the benchmark Sensex is down about 14%.

Since taking charge at Axis in 2009, Sharma who spent a good part of her career at the ICICI Bank group, began transforming it from a pure lender to a full-fledged financial services group.

The commencement of investment banking business under the Axis brand name and launch of products with Schroder's help will take Axis into the league of ICICI Bank, State Bank of India and HDFC Bank in offering the range of financial services. Axis, which is already a top bond arranger, will get equity and mergers & acquisitions strength with Enam.

"The Reserve Bank of India is okay with the change in the share swap as long as it is in favour of the bank,'' said Sharma. "The structure remains the same. The missing link was M&A. With this, we will be able to offer a full range of products,'' she added.

Axis Bank's strength in fixed income was also reflected in its treasury income tripling in the March quarter, helping the bank post profits amid retail business falling into losses. The March quarter net profit rose 25% to Rs 1,277 crore, up from Rs 1,020 a year earlier. Retail banking fell to a loss of Rs 5.8 crore, from a profit of Rs 114 crore a year earlier.

"The retail book has seen a loss as according to the Basel III definition all exposures of over Rs 5 crore on the asset side is included,'' said Somnath Sengupta, chief financial officer and whole time director, Axis Bank.

"SME and agriculture loans also fall under this category and the provisions to be made on this book has lead to a fall in the net profit in the retail business," he said.

Source: EconomicTimes