EUR 120.00 For Business Accounts Only

MOSL: INDIABULLS HOUSING FINANCE (Under Review)-Announces amalgamation with LVB- a marriage of convenience RBI’s approval a key

Indiabulls Housing Finance: Announces amalgamation with LVB- a marriage of convenience; RBI’s approval a key; can set stage for further sector consolidation

(IHFL IN, Mkt Cap USD5.6b, CMP INR903, Under Review)

 

• Indiabulls Housing Finance (IHFL) and Lakshmi Vilas Bank (LVB) have announced amalgamation, setting the stage for another NBFC (HFC) marriage with a bank. For LVB shareholders, for every 100 shares, they will get 14 shares of IHFL. 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. The deal is subject to all regulatory/shareholder approvals (RBI's approval remains the most significant one and will involve multiple considerations). If all approvals come, deal could get consumed in 3 quarters.
• 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. We do not have a coverage on LVB and will incorporate the impact of this transaction in our estimates of IHFL. Our estimates and valuation framework will change accordingly due to this event. We put our rating 'UNDER REVIEW' for IHFL.