Experts are viewing private lender IndusInd Bank as a hot stock on Dalal Street after finally, setting a merger date with Bharat Financial Inclusion Limited (BFIL). IndusInd and Bharat Financials were among the most awaited NBFC-bank mergers in the financial pace. IndusInd Bank’s board has fixed July 04, 2019 as the effective date of the scheme, on which date the NCLT order will be filed by the bank, BFIL and IFIL with the jurisdictional registrar of companies. Following the announcement, experts at IIFL Institutional Equities have given their buy rating on IndusInd Bank. 

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Talking about the new development, Abhishek Murarka and Arash Arethna analysts at IIFL Institutional Equities said, “IIB and BHAFIN finally declared the Effective Date of the merger as July 4, 2019. The long-awaited mer ger comes at an opportune time for the bank. Low cost of funds, PSLC benefits, low impact from CRR/SLR requirements, lower risk-weighted assets and low integration expenses are key benefits from the merger. For IIB, the merger results in capital augmentation of ~120bps to Tier 1 CAR and the preferential allotment to promoters will add ~Rs26.8bn over 18 months.”

The merger:

All the assets and liabilities of BFIL shall become assets and liabilities of the Bank with effect from the Appointed Date, being January 1, 2018. Simultaneously with the Amalgamation, the Business Correspondent undertaking of BFIL shall be transferred to IFIL, a Wholly-Owned Subsidiary of the Bank. All the assets and liabilities originated by IFIL will be booked in the Balance Sheet of the Bank.

IndusInd Bank will issue and allot to those Shareholders of BFIL whose names would appear in the register of members of BFIL on the Record Date, 639 (Six hundred and thirty nine) Equity shares of the Bank, credited as fully paid up, for every 1,000 (One thousand) Equity shares of the face value of INR 10/- (Rupees ten) each fully paid-up held by such member in BFIL.

All the employees of BFIL will become part of IndusInd family.  M.R. Rao, currently MD and CEO of BFIL, will become the MD & CEO of IFIL.

That said, the duo said, “This will allow IIB to make higher provisions on stressed exposures and stressed sectors like real estate/NBFCs. The merger is EPS and BVPS accretive.”

On IndusInd Bank stock, the IIFL analysts added, “The merger will generate a delta of ~40bps in NIM and ~20bps in RoA for IIB. We cut our fee/total income estimates to 32% by FY22ii (39% in FY19), building in a conservative case. Despite this, IIB’s RoA reverts to 1.8-1.9% by FY21/22ii and the RoE to 18-18.5%. This, along with the recent correction, makes the stock attractive.” As a result, target price is upgraded to Rs1,690/share, at 2.7x FY21ii BVPS.

On BSE, the share price of IndusInd Bank finished at Rs 1,448.70 per piece up by Rs 13.20 or 0.92%. The stock also touched an intraday high and low of Rs 1,464.25 per piece and Rs 1,419.60 per piece respectively.