Home / Markets / Stock Markets /  Equitas SFB’s reverse merger with its parent company is on track: What should shareholders do?

The proposal for Equitas SFB amalgamation with its parent firm, Equitas Holdings, has now come close as the bank recently disclosed that it has a meeting set up with the NCLT for December 21, 2022, as part of this procedure. The bank already got two approvals: (a) a "no-objection" from the RBI in May 2022 and (b) a shareholder approval in September 2022. The bank had disclosed a revised share swap ratio of 100:231 for the reverse merger. The management has stated that it anticipates wrapping up the amalgamation process around January 2023.

Post the reverse merger of Equitas Small Finance Bank with its parent company, the research analysts of Kotak Institutional Equities (Kotak Securities Limited) said “Our recent interactions with the management of Equitas SFB indicate that the bank is poised well for an improvement in return ratios and growth. The bank is now navigating through the final few steps of the reverse-merger process, which provides an opportunity for Equitas Holdings’ shareholders to benefit from the holding company discount’s narrowing."

They further added that “As the bank moves closer to the finalization of the reverse merger, the holding company discount is expected to narrow from the current level of ~22%. This provides an opportunity for the shareholders of the holding company to benefit in the short term, assuming the amalgamation process is successful in the currently proposed format. Note further that the holding company carries additional liquid assets (cash and bank balances), amounting to ~Rs2.75 bn (apart from the investment in Equitas SFB), which would accrete to the net worth of the merged entity. Equitas SFB trades at ~1.5X of 2QFY23 book value (not adjusted). Assuming the same valuation multiple for the merged entity implies an overall upside of ~31% for current shareholders of Equitas Holdings."

They have claimed in a report that “We retain ADD rating and fair value (FV) of Rs60 (Rs56 earlier). At our FV, we are valuing the bank at 1.2X BVPS (adjusted) and 9X December 2024E EPS for mid-teen RoEs in the medium term. We continue to build in a steady recovery in return ratios, driven primarily by lower credit costs in the medium term. As much as the asset quality pain seems to be behind, we expect the bank to start reporting stronger credit growth across its secured and unsecured segments over the medium term."

The shares of Equitas Small Finance Bank Ltd closed today at 53.50 apiece level, down by 0.19% from the previous close of 53.60. The stock recorded a total volume of 1,421,357 shares compared to the 20-Day average volume of 2,252,903 shares. On a YTD basis, the stock has fallen 10.08% so far in 2022. The stock had touched a 52-week-high of 63.80 on (13-December-2021) and a 52-week-low of 37.45 on (17-June-2022).

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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