Lakshmi Vilas Bank soars 10% on D-Street, touches upper circuit! Check link with Indiabulls Housing

Even though benchmark indices Sensex and Nifty were witnessing heavy selling sentiments from investors, on the contrary the share price of Lakshmi Vilas Bank saw massive buying. Investors were so upbeat on Lakshmi Vilas Bank, that the stock even touched upper circuit on Dalal Street, rising by a whopping 10% in just 1 day. This comes right after the Competition Commission of India (CCI) gave a green signal to NBFC-major Indiabulls Housing Finance for its merger with Lakshmi Vilas. 

At around 1338 hours, Lakshmi Vilas Bank stock was trading at upper circuit of Rs 63.50 per piece on Sensex, up by 9.96%. Meanwhile, investors were also optimistic on Indiabulls Housing shares, as the HFC rose by 1.34% trading at Rs 608 per piece on the same index. 

Indiabulls on Friday informed exchanges that, the CCI has approved the proposed scheme of amalgamation with Lakshmi Vilas Bank under section 230 to 232 of the Companies Act, 2013. 

Earlier, the Chennai-based bank’s board had approved merger with Indiabulls, where the bank’s shareholders will receive 14 shares of the latter for every 100 shares they hold. 

When the merger deal came into light, Alpesh Mehta, Nitin Aggarwal  and Himanshu Taluja, Research Analyst at Motilal Oswal had highlighted that, the  merger is a win-win deal for both IHFL and LVB. IHFL gets access to banking platform, essentially the liability franchisee and provides longevity to its lending business on a consistent basis. LVB, though a 9 decade old bank, has struggled to make mark in a growing banking industry, lost market share and has been constrained for capital. The amalgamated bank will also benefit from the efficiency of IHFL, which operates on a very low C/I ratio of 12.7% (as on FY18) backed by a strong technology architecture. This deal, though a significant long-term positive for IHFL, will have some adverse transition impact on the near-term return ratios. 

Kunal Shah, Prakhar Agarwal and Prashant Ghuge analysts at Edelweiss Securities had said, “We view transaction favourably as it improves visibility on IHFL’s long-term growth trajectory. Given IHFL’s good track record, we believe efficient churning of the banking platform will bring forth synergies over the medium term.”