Axis Bank's OFS opens for retail investors today. Should you subscribe?

The government’s Rs 4,000-crore offer for sale (OFS) in Axis Bank received a warm reception by non-retail investors on Wednesday as the issue got over-subscribed by more than two times. The retail investors will get a chance to participate in the stake-sale process today, and analysts suggest they shouldn’t miss the opportunity.

“With this OFS, the hangover of SUUTI’s stake sale in the bank’s stock will ease which will reduce the volatility in the stock going-forward and put it on the growth trajectory,” says Siddharth Purohit, equity analyst at SMC Global.

The government, via Specified Undertaking of the Unit Trust of India (SUUTI), has been paring its stake in Axis Bank through OFS for quite some time now. Last year, Centre had sold nearly 10 million shares of Axis Bank worth around Rs 600 crore as part of its stake sale strategy.

Under the current scheme, SUUTI will sell its 1.21 per cent stake or 36 million shares in Axis Bank with the floor price set at Rs 680 a share. Additionally, SUUTI also has an option to sell its 0.74 per cent or 22 million shares in the private sector lender.  READ ABOUT IT HERE

As the government will be left with bare minimum stake, investors may not have to worry about such intermittent volatility, says AK Prabhakar, head of research at IDBI Capital. “Because of the overhang, the bank’s stock has not been performing too well at the bourses. However, once this is over, the stock will scale new heights. Thus, investors should participate in the OFS,” he adds.

Shares of the lender slipped over 1 per cent on the National Stock Exchange (NSE) on Thursday and were trading around Rs 708 apiece. In comparison, the benchmark Nifty50 was down 0.4 per cent in early deals. So far in the current financial year, the stock of the lender has performed in-line with the benchmark by adding 2.7 per cent on the NSE as against a 2.3 per cent gain in the Nifty50 index.  

Furthermore, while the OFS’ floor price offers a relatively miniscule discount (5 per cent) to current market price, Prabhakar suggests retail investors should participate in the OFS as the lender is a long-term bet.

“Axis Bank remains a buy as the lender is focusing on improving its technological backend, where lenders like HDFC Bank have lagged. Therefore, any discount opens an entry point in the stock which may not be available at this price in six months from now,” he says.

During the analysts’ call post March quarter (Q4FY21) results, Amitabh Chaudhury, managing director and chief executive officer of Axis Bank said the lender is in the “midst of transitioning to a cloud first approach and has launched cloud native applications”

“We believe we are ahead of the curve as far as cloud strategy is considered. It allows us play-ability, it gives us more resilience for which we have to invest in and we can benefit from cloud technology tools provided by the players globally. We will move in this direction in quarter and years to come,” he had said.

Axis Bank was back in the black in Q4 and reported a net profit of Rs 2,677 due to a sharp fall in provisions. The lender had reported standalone net loss of Rs 1,388 crore in the year-ago period. Its net interest income rose 11 per cent to Rs 7,555 crore as against Rs 6,808 crore a year ago while provisions and contingencies during the quarter fell 58 per cent to Rs 3,295 crore as against Rs 7,730 crore in year-ago period.

Nearly all the brokerages retained their ‘buy’ calls on the stock post results with target prices as high as Rs 925 (Motilal Oswal Financial Services), Rs 850 (Emkay Global), and Rs 830 (Phillip Capital).