SBI, associates’ shares gain on higher volume and proposed merger2 min read . Updated: 17 Jun 2016, 02:13 AM IST
SBI, State Bank of Travancore, State Bank of Bikaner & Jaipur and State Bank of Mysore gain on higher volumes and proposed merger
Mumbai: Shares of State Bank of India (SBI) gained 30%, while its three listed associates—State Bank of Travancore, State Bank of Bikaner & Jaipur and State Bank of Mysore—gained around 50% in the last three weeks, on the back of higher volumes along with the Union cabinet clearance for the proposed merger of these arms with India’s largest lender, SBI.
SBI closed up 0.02% to ₹ 215.70, State Bank of Travancore closed up 15.2% to ₹ 551.75, State Bank of Bikaner & Jaipur gained 15.7% to closed at ₹ 694 and State Bank of Mysore gained 20% to closed at ₹ 657.45.
At closing, State Bank of India closed over five month high, State Bank of Travancore hit a 22-month high, State Bank of Bikaner & Jaipur hit an all-time high, while State Bank of Mysore hit a three-and-half-year high.
Over the last three weeks, State Bank of India gained in 13 out of 18 trading sessions. Since 23 May, it gained 29.3% and so far this year, it fell 2.6%. State Bank of Travancore jumped in 12 out of 16 trading sessions, gained over 47.4% since 25 May and so far this year rose 34.82%. State Bank of Bikaner & Jaipur surged in 11 out of 16 trading sessions. Since 25 May, it gained 50% and so far this year it is up 35.61%. State Bank of Mysore gained in 13 out of 17 trading sessions. Since 24 May, it gained 59.29% and year-to-date it rose 57.68%.
On Wednesday, the cabinet approved the merger of the subsidiaries—State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore—and Bharatiya Mahila Bank Ltd with SBI.
The merger will see the combined entity’s balance sheet at a whopping ₹ 37 trillion, making it one of the top 50 banks in the world.
“The merger of SBI and its associate banks is a win-win for both. While the network of SBI would stand to increase, its reach would multiply. One can expect efficiencies to be created from rationalization of branches, common treasury pooling and proper deployment of a large skilled resource base," Mint reported, quoting SBI chairman Arundhati Bhattacharya.
“We expect treasury gains to get a boost as quality of investment will improve while cost of deposit will decline due to lower term deposit rates at the parent level. In addition, the merger will reduce account duplication for all the banks and will help save on employees/system cost over the medium term. We note that SBI by itself has been having consistent decline in its employee base over past few years," said Antique Broking Ltd in a note to its investors.
“We believe that merger will be positive from valuation perspective as the current trading multiples of the associates (SBBJ, SBM & SBT) is lower (discount of ~30%) than parent SBI. We believe that as the merger progresses the valuation discount between SBI and its associates will narrow and hence presents a good opportunity to buy into associates. SBI will also stand to benefit due to the virtuous cycle owing to increase in valuation of its SOTP constituents," the broking firm added. It maintained the rating of the SBI at “buy" and increased its target price by 16% to ₹ 250 a share.
Of the analysts covering the SBI stock, 38 have a “buy" rating, eight have a “hold" rating, while six have a “sell" rating, shows Bloomberg data.