Axis enters world of deals with Enam buy

Foray into i-banking will give edge to thriving corporate banking franchise

Axis Bank on Friday announced the completion of its deal with Enam Securities ending a two-year wait, which it calls a “blessing in disguise”. Axis Capital, which will house the investment banking and institutional equities business post-merger, will debut next week with some of the top rainmakers in business on its rolls.

In 2010, Enam took the third position in the league table for equity fund raising in India. The move will give India’s third largest private sector lender a firm footing in the securities and investment banking business and position itself as a new financial supermarket to rival bigger lenders, such as State Bank of India and ICICI Bank, say analysts.

With the introduction of the new investment banking franchise, Axis Bank is aiming for a lot of synergies. “We have a strong corporate banking franchise, and now to have investment banking on top is a model we were looking for,” said Srinivasan Varadarajan, executive director-corporate banking, Axis Bank. “Clearly, we have a dominant position in the fixed-income business. But on the equities, we didn’t have any presence. It is not something which could have been built organically.”

Manish Chokani, who will lead Axis Capital agrees. “The access you get into corporates by virtue of having investment banking is unique. Now, instead of you being the fourth person in the queue when a corporate comes out to syndicate a loan, you could be the person who has designed the whole structure.”

Acquisition of unlisted firm Enam was carried out through an all-stock transaction with Enam shareholders receiving five Axis Bank shares for one Enam share, translating into about 2.93 per cent of the lender’s total shareholding. At Friday’s valuation, the Enam buy gets pegged at around Rs 1,400 crore.

Axis Bank, however, has not set any breakeven targets for the acquisition but is aiming to grow its fee-income pie. Axis, at the moment, is looking at the value an investment banking franchise will give to the bank, rather than the valuation. “The idea is not how Enam will become eight per cent of the bank from two per cent of the bank. The objective is to make 100 per cent of the bank much more valuable,” said Chokhani.

“We don’t want to see a breakeven in the Enam P&L. We want to look at the overall pie. If you look at it as investment banking has to deliver so much of P&L and that is what will justify my acquisition, then you are just restricting yourself,” said Varadarajan. Chokhani, though, would like to grab five per cent market share of the $1 billion investment banking fee pool. “In equities, it is about a $1 billion a year for which everyone is playing. By and large 10 to 15 established players get a natural market share of five per cent,” he said.

In November 2010, Axis announced an all-stock deal to buy Vallabh Bhansali-led Enam Securities. However, the integration was delayed due to pending regulatory approvals. The lender finally got approval from the Gujarat High Court recently. Reserve Bank of India, the banking regulator, had earlier cleared the deal.

“The two-year delay and lull in the market have helped us put all the nuts and bolts together,” said Chokhani, who was heading the institutional equities business at Enam. Varadarajan, added, “It has given us some space to get to know each other, integrate. When the high tide comes we are ready.”