Private sector lender IDFC Bank’s acquisition of Tiruchirappali-based microfinance company Grama Vidiyal Micro Finance (GVMFL) appears to be a fairly good deal, an analysis of valuations of other listed microfinance companies reveals.
IDFC Bank has announced that it is buying GVMFL at a consideration of Rs 320 crore which values the firm at a price to book value of 2 times FY16 book value.
At the current price, Ujjivan Financial Services trades at a price-to-book multiple of 4.08 times FY16 book value of Rs 118.47/share. Equitas Holdings, a holding company, trades at 3.7 times. Arman Financial Services, which is a smaller business than GVML, trades at a multiple of 3.14 times FY16 book value of Rs 88.53 per share share.
Post completion of the acquisition, GVMFL will become a wholly owned subsidiary of IDFC Bank and act as one of its dedicated business correspondents. The acquisition will also see all loan assets of GVMFL transferred to IDFC Bank. Rajeev Lall, IDFC Bank’s founder MD & CEO, had said GVMFL’s 1.2 million existing customers will help the bank to have over 1.5 million customers by the end of FY17.
Even analysts believe the acquisition will add momentum to IDFC Bank’s expansion plans. “IDFC’s Bharat banking division has focused on building capabilities in the interiors and has been partnering with MFIs and other NBFCs.
This acquisition will help the division to establish its grasp in the interiors,” analysts at Kotak Institutional Equities said.
According to Microfinance Institutions Network, GVMFL is the ninth-largest microfinance company in the country with a gross loan portfolio of Rs 1,502 crore at the end of FY16, compared with Ujjivan’s Rs 4,088 crore and Bharat Financial Inclusion’s Rs 7,677 crore.