Why Indiabulls Housing-Lakhsmi Vilas Bank deal is a win-win; here are synergies from the merger

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Updated: April 09, 2019 1:23 PM

Even as Indiabulls Housing Finance- Lakshmi Vilas Bank awaits RBI approval, the deal may prove to be value accretive for both the entities, say analysts.

invest in stocks mutual funds fd and rd investment options for better returnDue to the deal, Indiabulls Housing will get access to a banking platform, essentially the liability franchisee.

Even as Indiabulls Housing- Lakshmi Vilas Bank awaits RBI approval, the deal may prove to be value accretive for both the entities, say analysts. According to Motilal Oswal, the merger is a win-win deal for both Indiabulls Housing Finance and Lakshmi Vilas Bank. For Lakshmi Vilas Bank merger for every 100 shares, the shareholders will get 14 shares of Indiabulls Housing Finance. “This implies a 36% premium to the closing price of LVB as of 5th Apr’19 and ~63% premium to the last six months’ average price. The scheme of arrangement would lead to a 10.5% dilution,” said Motilal Oswal in the report.

Due to the deal, Indiabulls Housing will get access to a banking platform, essentially the liability franchisee. This will also provide longevity to its lending business on a consistent basis, noted Motilal Oswal. The 90-year old lender Lakshmi Vilas Bank has struggled to make a mark in the currently growing banking industry resulting in lost market share. Further, the bank has been constrained for capital. The merged bank will therefore benefit from the efficiency of IHFL, which operates on a very low cost-to-income ratio of 12.7% (as on FY18) backed by a strong technology architecture, noted Motilal Oswal.

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While the deal is a significant long-term positive for Indiabulls Housing, there will be some adverse transition impact on the near-term return ratios. Notably, the deal has not yet received a go-ahead from RBI. The RBI has said it has not approved the announcement of a merger between Lakshmi Vilas Bank and India Bulls Housing Finance Ltd.

“It is clarified that the merger announcement does not have any approval of RBI at this stage. The proposals, as and when received from these entities, will be examined in RBI as per extant regulatory guidelines/directions,” read a statement issued by chief general manager Yogesh Dayal on Saturday night.

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