Mumbai: Shares of Bandhan Bank fell 6%, while Gruh Finance Ltd declined 14% after both firms announced merger through a share swap deal, which analysts expect to be expensive for former. Intraday, Bandhan Bank shares slumped as much as 6.04%, while Gruh Finance shares plunged 14.4%. At 9.51am, Bandhan Bank was trading at ₹ 480.05 on BSE, down 4.2%, and Gruh Finance traded 13.5% lower at ₹ 265 a share. India’s benchmark Sensex index was trading at 35786.69, down 0.18% from its previous close.
“Gruh Finance has developed a very profitable and niche business franchisee over the years. So the acquisition of Gruh Finance by Bandhan Bank is pricey in short term but if the scale up of this business continues to remain profitable than it can provide benefits in long term", said PhillipCapital in a 8 January report.
“Both the entity caters to the bottom of the pyramid segment and hence the acquisition can be termed as complementary from Bandhan’s standpoint", the PhillipCapital report added.
On Monday, the board of Bandhan Bank and Gruh Finance approved the scheme of amalgamation of Gruh Finance into Bandhan Bank through a share swap deal. Shareholders of Gruh Finance will get 568 share of Bandhan Bank for every 1000 shares of Gruh Finance.
Analysts say the merger ratio is EPS and book value dilutive for Bandhan Bank by 6.5% and 12%, respectively. Deal values Gruh Finance at 12.5x trailing price to book value. Post-merger the share of micro banking asset to come down to 57% from 86% for Bandhan Bank.
Bandhan Bank being a micro finance entity enjoys a high spread and return on asset (RoA) of 4.25% (trailing) compared to 2.6% for Gruh. Post-merger, the RoA of the merged entity is expected to compress, PhillipCapital says.
Analysts believe the acquisition is expensive for Bandhan Bank and it does not fully resolve promoter stake dilution concern. RBI’s banking licence rules required Bandhan Financial Holdings Ltd to halve its stake from 82.3% to 40% within three years of starting business. RBI had in September placed restrictions on Bandhan Bank for its failure to meet the rules by freezing branch expansion and remuneration of founder and chief executive Chandra Shekhar Ghosh.
The acquisition will help Bandhan Bank diversify its product basket and de-risk portfolio by addition of secured loan product.
According to analyst, the swap ratio is unfavourable for Gruh Finance given its 73.30 crore paid up capital its valuations with the swap ratio comes out to around ₹ 20800 crore or 7% lower from its Monday’s closing market capitalisation of ₹ 22436 crore on BSE.
In the September quarter, Gruh Finance disbursed loans worth ₹ 2,738 crore. The loan book stood at ₹ 16,663 crore at the end of the quarter. The home financier, which is primarily focused on retail segment, recorded a net profit of ₹ 220 crore for the first half of the current fiscal.