For someone who used to consider acquisitions a distraction, and saw organic growth opportunities as India’s “sweet spot”, Axis Bank Managing Director and CEO Shikha Sharma was quick to grab an opportunity for merger when it came her way. After all, it’s not often that one gets a chance to acquire the investment banking, institutional and retail equities broking business of a leading domestic player like Enam Securities. In 2010, Enam was ranked third in the Bloomberg league tables for domestic equity offerings with an 8 per cent market share. It also occupies the number one position as a banker for rights issuances in the current year with a market share of 25.4 per cent. But most importantly, it helps India’s fourth-largest bank, in terms of market capitalisation, plug a big gap in its portfolio of offerings. Axis, which was topping the debt and loan league tables, was unable to break through the equity capital markets and mergers and acquisitions table. Most of Axis’ peers like ICICI Bank, HDFC Bank and others already have a strong securities arm. In a masterstroke, Ms Sharma has also ensured continuity of management as the business will be led by Enam Director Manish Chokhani. Capital market-related businesses are different from traditional banking and continuance of the top management of Enam will make sure that the new subsidiary fires from day one without suffering any transitional problems. The two firms also share commonality with respect to client profile, and should be able to drive synergies after coming together. These are all the ingredients of a win-win deal.
It’s a huge plus for Enam as well, and shows the maturity of the redoubtable Vallabh Bhansali. It was becoming increasingly clear that the days of pure-play investment banking are getting over and the need of the hour is huge one-stop financial shops. Globally, major stand-alone investment banks that went bankrupt have either merged with commercial banks or transformed themselves into bank holding companies. Just advice, ideas or relationships won’t be enough as along with capital, client companies’ debt requirements also have to be met. That is where the marriage with Axis makes maximum sense. Besides, the Enam Group will get to retain the proprietary trading and asset management business. The proprietary trading desk itself is estimated to be around Rs 10,000 crore.
There have been some misgivings over whether the deal is expensive when compared to peers, but most analysts say that the deal is strictly not comparable as other listed broking houses like Edelweiss and India Infoline also have large fund-based business and have raised capital in the last three years. Besides, Axis, with its strong relationships in corporate banking, is well positioned to leverage strong investment banking relations and the brand of Enam to grow its revenues in the equities business. The most important point, however, is that competition in brokerages is shrinking profit margins fast as is evident from the stock market performance of pure-play brokerage and investment banks. Ms Sharma’s retail broking business under the brand name Axisdirect is all set to get a cracker of a start, following the Enam deal. Surely, it must be more than just a coincidence that ICICI Bank’s similar business is known as ICICIdirect!