Axis Bank share price: IRDAI Approves Stake Acquisition in Max Life Insurance, Morgan Stanley maintains overweight rating with price target of Rs 1000

The Insurance Regulatory and Development Authority (IRDAI) has given formal approval to the acquisition of a 12% stake in Max life Insurance by Axis Bank and its subsidiaries (namely, Axis Capital and Axis Securities). This was the final approval required for the deal, with CCI and RBI having approved it earlier. As per the transaction, Axis Bank, along with its entities, have the right to acquire up to 19% of Max Life Insurance. Morgan Stanley maintains an overweight rating with a price target of Rs 1000. Axis Bank share price today is Rs 777, up Rs 28 or 3.8%.

In the first leg, Axis Bank will acquire up to 9% and Axis Capital Limited and Axis Securities Limited together will acquire up to 3%.Further, Axis Bank subsidiaries have the right to acquire an additional stake of up to 7% in MaxLife in one or more tranches – this will likely be acquired over the course of the next few years.

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Valuation Methodology and Risks:

Axis Bank Risks to Upside:

Strong pickup in loan growth and margin
Greater improvement in operating leverage given digitization
Continued improvement in asset quality

Axis Bank Risks to Downside:

Sharp rise in COVID-19 cases/delayed availability of vaccines leading to slower than-expected macro pickup, driving slower growth and higher NPLs
Potential risk of higher holding company discount, if the RBI moves to make NOFHC mandatory

Ajit Mishra, VP - Research, Religare Broking says that Markets managed to end on a strong note in an unusual session. The benchmark made a decent start, tracking favourable global cues however technical glitch on NSE halted trading for most of the session before resuming again at 3.30 pm. Sentiment boosted in the extended hours, taking note of the news that the finance minister allowed the government businesses to transact with private banks.

Consequently, the Nifty index ended with strong gains of nearly 2%. Amongst the sectors, Banking was the top outperformer ending higher by 3.7% followed by Capital Goods which ended higher by 1.8%. The broader markets too participated as both BSE Midcap and Smallcap ended higher by 0.8% and 1.1%. Religare Broking expect volatility to remain high on Thursday due to the scheduled derivatives expiry of February month contracts. It would be prudent to avoid naked leveraged positions in early trades and prefer hedged bets.