The news of Banhdan Bank and Grush NSE merger, where the former agreed to acquire the housing finance firm through a share swap deal was in main headlines since a few weeks. But the latest share results are showing a negative outlook to both. After the acquisition, shares of Bandhan Bank and Gruh NSE 3.65 per cent Finance slipped up to 12 per cent.
Under the merger agreement, shareholders of Gruh Finance will receive 568 shares of Bandhan Bank for every 1,000 shares held. During the acquisition, the bank said the Bandhan-Gruh merger will result in enhancement of shareholders’ value, new product development, integration of technology platforms, enabling the two firms to further their socio-economic objectives.
Bandhan Bank has been under pressure from the Reserve Bank of India to reduce promoter shareholding and Citi analysts believe that merger will result in a dilution in Bandhan’s promoter shareholding to 61 pct from 82 pct although the regulatory target of 40 pct has not been met as yet.
According to Phillip Capital, the merger ratio is EPS and book value dilutive for Bandhan Bank by 6.5 per cent and 12 per cent, respectively. “Post merger, the share of micro banking asset would come down to 57 per cent from 86 per cent for Bandhan Bank. At the current market price, the swap ratio is negative for Gruh Finance and is expected to witness around 7 per cent correction. The deal values Gruh Finance at 12.5x trailing price to book value. Bandhan Bank being a microfinance entity enjoys high spread and return on asset (RoA) of 4.25 per cent (trailing) compared to 2.6 per cent for Gruh. Post-merger, the RoA of the merged entity is expected to compress,” it stated.
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. Both entities cater to the bottom of the pyramid segment and hence the acquisition can be termed as complementary from Bandhan’s standpoint.