Merger Approval Impact: IDFC Gains 5% while IDFC First Bank Incurs a 3% Setback

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Shares of IDFC First Bank dropped up to 6% after the announcement of the merger with the parent business IDFC. The share swap agreement favored IDFC, which led to an increase in IDFC’s stock price and a decrease in IDFC First Bank’s stock price. Although it is doubtful, Nuwama Institutional Equities advised engaging in spread trades at suitable levels. The combination is pending regulatory approval and is anticipated to be finished in 12 to 15 months.
As the stock swap agreement with the parent IDFC sounded disadvantageous following the merger announcement yesterday night, IDFC First Bank’s shares dropped by as much as 6% on Tuesday, reaching a lower level of 77.10. The stock of IDFC was trading 0.6% higher after the hit. It reached a 52-week high of 115.70.

IDFC

For every 100 shares of IDFC they own, shareholders will receive 155 shares of IDFC First Bank as part of the merger’s share exchange ratio.
The differential is 16.3% in favor of IDFC stockholders as of Monday’s closing price. Spread trades are only advised by Nuwama Institutional Equities when the merger is on schedule and at an appropriate level. According to Pagaria of Nuwama, “The spread is a good level for entry if it is available at 13% to 14%, but it is unlikely to happen.”
One of the leading candidates to be added to the benchmark MSEI August 2023 index is IDFC First Bank. According to Pagaria, in order to qualify for inclusion, there must be a price increase of more than 4% in the share price (or about $85 per share). The flow might be in the range of $170 to $180 million. Additionally, he stated that the combination will not affect the likelihood of being included in international indices.


The only issue that might come up, according to an analyst, is if the stock price drops below the crucial cutoff threshold. The completion of the combination is projected to take 12 to 15 months, subject to regulatory agency approvals. About 40% of IDFC First Bank is owned by IDFC through IDFC Financial Holding. IDFC is entirely owned by the public. By the conclusion of March, IDFC First Bank boasted an impressive portfolio with total assets amounting to a staggering 2.4 lakh crore and revenue soaring at 27,194.51 crore. The bank declared a net profit of 2,437.13 crore for FY23. Total assets of $9,570.64 crore and income of $2,000 crore were held by IDFC. The anticipated merger will raise the bank’s standalone book value per share by 4.9%.

More About Merger IDFC and IDFC First Bank

A strong deposit franchise that the bank has established has grown at a CAGR of 36% over the last four years.
The bank itself has said that IDFC First Bank is well-positioned to produce profitable expansion that will benefit all stakeholders and that this presents a fantastic long-term opportunity for value development.

An important turning point in the financial sector has been reached with the union of IDFC and IDFC First Bank. The united firm combines the advantages, know-how, and assets of two preeminent organizations, resulting in a force that is ready to transform the financial industry. The merger paves the way for a future of innovation, development, and revolutionary financial services with amplified financial solutions, unrivaled client experiences, expanded technical capabilities, a strengthened network, and a continuous commitment on social responsibility.

As IDFC and IDFC First Bank combine to set a new norm for the sector, exciting times are coming. Prepare to experience the power of this incredible cooperation by keeping an eye out for more developments.

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