Monday, July 22

IDFC First Bank’s stock has experienced a decline due to concerns surrounding the merger ratio

According to Nuvama Alternative Research, IDFC First Bank is considered the top probable contender for inclusion in the MSCI August 2023 Standard Index. However, for the stock to meet the requirements for inclusion, it would need to experience a rally of approximately 10 percent from its current levels.

On July 4, the share price of IDFC First Bank declined by over 5 percent following the announcement of the share swap ratio for its merger with IDFC Ltd. Shareholders of IDFC Ltd will receive 155 equity shares of IDFC First Bank for every 100 equity shares held. Based on the closing price on July 3, IDFC shareholders are receiving a premium of 17 percent, indicating a premium of 24 percent based on the previous Friday’s closing price.

As a result, IDFC Ltd’s stock surged 2 percent, while IDFC First Bank fell 5 percent. As of 11:15 am, IDFC First Bank’s stock was priced at Rs 79.25 on the NSE, a decrease of 3.25 percent from the previous close.

Regarding the potential inclusion of IDFC First Bank in the MSCI index, Nuvama Alternative Research suggests that it is the top probable contender for inclusion in the MSCI August 2023 Standard Index. However, the stock would need to rally approximately 10 percent from its current levels to reach Rs 85 per share by the third week of July to meet the criteria for inclusion. The potential inflow resulting from inclusion could be around $170 million to $180 million.

The merger between IDFC First Bank and IDFC Ltd is expected to be completed this year. As the merger progresses, the spread between the two stocks based on the share swap ratio is anticipated to narrow.

Furthermore, it is mentioned that IDFC Ltd holds a 39.93 percent stake in IDFC First Bank through its non-financial holding company. After the merger, the book value per share of the bank is expected to increase by 4.9 percent, based on audited financials as of March 31, 2023.

V. Vaidyanathan, the managing director and CEO of IDFC First Bank, stated that post-merger, IDFC First Bank will receive Rs 600 crore in cash from IDFC Ltd. He also mentioned plans to raise capital worth Rs 2,000 crore by FY24, leading to a further increase in capital adequacy from the current level of 17.4 percent.