Making another major deal in the Indian banking space, days after the amalgamation of HDFC Twins, another bank has announced a merger with its parent in an all-stock transaction.
Shares of IDFC Ltd gained 6% to reach an intraday high of ₹ 115.70, while the shares of IDFC First Bank lost 6% to reach an intraday low of ₹ 77.05 apiece. The companies on Monday said that their boards have approved the amalgamation of IDFC Ltd with the bank.
The share exchange ratio will be 155:100 or 155 equity shares of IDFC First Bank for every 100 equity shares of IDFC. As a result of the proposed reverse merger scheme, The book value of the bank would increase by 4.9% as per the financials of the financial year 2022-23.
The merger scheme is subject to all requisite approvals from the Reserve Bank, Sebi, Competition Commission, National Company Law Tribunal and stock exchanges, and shareholders of both entities.
The merged entity will be fully owned by retail shareholders and institutional public shareholders. It will not have a promoter entity. It has a balance sheet of close to ₹ 33 lakh crore, with the assets alone sniffing at ₹ 23 lakh crore and also the largest mortgage book with close to ₹ 7 lakh crore of loans.
The companies said in two separate but identical statements that the merger will simplify their corporate structure by consolidating them and other subsidiaries into a single entity. Moreover, it will help to streamline regulatory compliance.
At 03:18 PM on Tuesday, IDFC First Bank’s shares were trading at ₹ 78.65 apiece, down 4%. It is a large-cap banking company with a market capitalization of ₹ 54,318 crores. It has a low return on equity of 10.59%. The bank’s shares were trading at a price-to-earnings ratio (P/E) of 21.09, which is significantly higher as compared to the industry P/E of 9.04, indicating that the stock might be overvalued as compared to its peers.
Meanwhile, IDFC Ltd’s shares were trading at 111.30 apiece. It is a mid-cap company with a market capitalization of ₹ 17,472 crores. It has a low return on equity of 6.56%. The company’s shares were trading at a price-to-earnings ratio (P/E) of 4.11, which is significantly lower as compared to the industry P/E of 21.69, indicating that the stock might be undervalued as compared to its peers.
Written by Simran Bafna
Disclaimer
The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
