Bandhan Bank, Gruh Finance shares plunge up to 14% after merger announcement; what brokerages say

By: | Published: January 8, 2019 12:22 PM

After private sector lender Bandhan Bank and housing finance firm Gruh Finance announced their proposed merger, the stocks plunged in the morning trade on Tuesday, as investors reacted negatively to the share swap ratio.

Bandhan Bank share price plunged more than 6.03% to Rs 470.85 in the morning trade on Tuesday.

After private sector lender Bandhan Bank and housing finance firm Gruh Finance announced their proposed merger, the stocks plunged in the morning trade on Tuesday, as investors reacted negatively to the share swap ratio announced. Bandhan Bank share price plunged more than 6.03% to Rs 470.85 in the morning trade on Tuesday. Gruh Finance share price tanked by more than 14% to Rs 262.20 on Tuesday morning, after the board on Monday approved merger of housing financier with Bandhan Bank in share-swap deal.

The shareholders of Gruh Finance will get 568 shares of Bandhan Bank for every 1,000 shares held. The merger is effective from January 1, 2019. The deal follows the Reserve Bank of India’s decision to impose strictures on Bandhan Bank for failing to reduce promoter shareholding as per the agreed regulatory timeline. Bandhan Bank’s shareholding in the merged entity will drop down to around 61 per cent. Bandhan Bank’s promoters owned 82.28 per cent in the bank before the merger.

Also read: Share market LIVE updates: Sensex opens mildly lower, Nifty above 10,750; Bandhan Bank plunges 6%

The amalgamation will result in enhancement of shareholder value accruing from synergy of operations, new products development, integration of technology and information, both the companies said in regulatory filings to stock exchanges yesterday.  Many brokerage firms have maintained their rating Bandhan Bank, but expressed concerns about the synergies that the deal may offer offer. Global firm Macquarie maintained a neutral rating on Bandhan Bank with a target price of Rs 540.

However, research and brokerage firm is of the view that the acquisition of Gruh from minority shareholders’ point of view is a wrong decision. Shareholders will be paying 13 times for Gruh as against 4.5 times paid for Bandhan, noted the firm. “Post merger, the share of micro banking asset would come down to 57% from 86% 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,” Phillip Capital said in a note.

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