Participation levels should be strong in the Rs 10,000-crore fundraise and the market should react positively to this announcement, says the SMC Global Securities research analyst.
Axis Bank is going for a Rs 10,000-crore fundraise via a QIP. What kind of participation can we expect with the floor price of Rs 442?
Capital raising is a must for most of the banks in the current environment and Axis is coming at the right time. On the issue side, I presume it is a mix of instruments and from my calculation, I have considered Rs 10,000 crore at a price of Rs 420, assuming that they offer a 5% discount.
Already the bank has shown some side of improvement in the moratorium level and has given a positive commentary compared to last quarter. So participation levels from investors should be quite high for the issue and given that capital position is improving for the bank. Based on my quick calculations, the capital adequacy should improve by 155 bps, This should give confidence to investors that the bank will be able to sail through difficult times. All we have to do is to look forward for growth in the coming years.
Participation levels should be strong and the market should react positively to this announcement. I take it positively on a net-net basis. One thing I would like to highlight is that based on my calculation, their PET ratio which was 13.5% before the issue should improve almost 150-160 bps on conservative estimation. All these factors give the confidence that money is coming even at difficult times for banks which are well managed and given the fact that the banks are trading at a discount to below their five year average price to book value, I think investor will grab the opportunity to subscribe to the issue. I am positive on this and I feel a potential 15% to 20% upside on the stock in the near term cannot be ruled out. I stay positive post the announcement of the deal.