Further, the two people added that a planned public listing of Axis Finance has been set aside in favour of a private selloff because of potential higher valuations.
Axis Bank, India’s third largest private lender, is looking at a valuation of around $1 billion for its wholly owned NBFC (non-banking finance company) subsidiary, the people said. Investment bank Morgan Stanley has been tasked to find a buyer for Axis Finance, these people added.
The bank may sell off 80-100% of its ownership in the non-bank lender if a suitor offers a premium for acquisition of control, said the first person.
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On 20 August, Mint reported that Axis Bank may bring a strategic investor for Axis Finance or even consider a public listing of the non-banking subsidiary.
RBI draft norms say that scheduled commercial banks must curtail stakes in all subsidiaries, including NBFCs, to 20% or below within two years. Another RBI proposal says multiple group entities within a bank would not be allowed to conduct similar business and there should be no overlap of lending business between banks and group entities.
Emails sent to Axis Bank and Morgan Stanley on Tuesday morning did not elicit any response till press time.
On Tuesday evening, Bloomberg reported, citing sources, that Axis Bank is considering options for Axis Finance, including the possible sale of a majority stake in the shadow-bank unit, and that the private sector lender is working with an adviser on a strategic review for Axis Finance.
The valuation
The first person cited above said that the book value of Axis Finance is around ₹4,000 crore, on top of which a premium is typically paid by buyers for a majority stake acquisition or takeover of control in any company.
“A valuation of two times the book value of Axis Finance is being discussed with potential buyers, along with a control premium in this case. That way, the bank is looking at a valuation of ₹8,000-10,000 crore,” said the first person.
This person added that while negotiations with potential suitors began just a few weeks ago, several private equity (PE) buyers are ready to acquire Axis Finance, given the strength of its business. “It is a middle-layer NBFC with a steadily growing business, which creates a compelling deal for the buyers, especially those who are keen to enter India’s growing financial services industry,” said the first person.
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To be sure, RBI had brought in scale-based regulations for NBFCs in October 2023, which divides NBFCs into three categories—upper layer, middle layer and base layer—based on their size and scale of operations.
IPO shelved
Over the past few months, Axis Bank has been primarily working on an option to dilute some stake in Axis Finance via an IPO (initial public offering). But the plans have now changed after the bank was advised by investment bankers that a better valuation can be expected from a complete private selloff, said the first person.
“A part-stake sale in an IPO may not earn as much valuation for Axis Finance as a private deal for a complete acquisition can get,” the first person said. “And through such a private deal, the bank will also be able to curtail its exposure to subsidiaries below what RBI is comfortable with.”
Axis Finance could also merge with Axis Bank to come in line with the proposed RBI norms, but that may be tough, time-consuming and create challenges in terms of asset-liability mismatch, according to the two people cited earlier.
Also read | Axis Bank Q3 profit seen muted; asset quality, deposit growth in focus
Axis Finance is primarily engaged in the business of retail and wholesale lending, MSME loans, and insurance.
For the April-December period of 2024, Axis Finance earned a total income of ₹3,013.9 crore as against ₹2,255 crore in the corresponding period of the previous year, according to data from the company. The NBFC recorded a net profit of ₹494 crore for the nine months of FY25 compared to ₹434.6 crore in the same period of FY24.
