After HDFC twins, IDFC First Bank approves merger with IDFC; stock tanks 6%

After the HDFC-HDFC Bank merger, IDFC First Bank's board has approved the merger with its promoter group IDFC Ltd at an "arm's length basis". As a result of the proposed merger, the standalone book value per share of the bank will increase by 4.9%.

The merger proposal says the share exchange ratio will be 155 equity shares of the face value of ₹10 each of IDFC First Bank for every 100 fully paid-up equity shares of the face value of ₹10 each of IDFC Ltd.

As of date, IDFC Limited, through IDFC Financial Holding Company Ltd, holds a 39.93% stake in IDFC First Bank, and IDFC Ltd is the promoter of IDFC First Bank.

Reacting to the development, the IDFC First Bank stock tanked 6% after opening flat at ₹81.94. The stock dipped to an intra-day low of ₹77.10 and is currently trading at 5.25% down at ₹77.64 on the BSE. At the current share price, the m-cap of IDFC First Bank stands at ₹51,461.22 crore. IDFC Ltd, on the other hand, has surged 0.23% to ₹109.35. In contrast, the BSE benchmark Sensex is up 0.023% at 65,218, while Nifty is down 0.023% at 19,318.10.

Explaining the rationale behind the merger, IDFC Bank said it’ll lead to “simplification of the corporate structure” of IDFC FHCL, IDFC Limited, and IDFC First Bank by consolidating them into a “single entity” and will help “streamline the regulatory compliances”.

The merger will also help create an institution with diversified public and institutional shareholders, like other large private sector banks, with no promoter holding, the bank said in a stock exchange filing.

IDFC First Bank has a total assets of ₹2,39,941.66 crore, a net worth of ₹25,721.16 crore as on March 31, 2023, and a turnover of ₹27,194.51 crore. Its net profit as of the financial year ending March 31, 2023, was ₹2,437.13 crore.

IDFC Ltd’s assets value stands at ₹9,570.64 crore, with its net worth at ₹9,518.64 crore (as of March 31, 2023). Its turnover was ₹2,076.00 crore for the financial year ended March 31, 2023. IDFC Financial Holding Company's assets are worth ₹10,822.44 crore, with a net worth of ₹10,785.43 crore as on March 31, 2023, and a turnover of ₹3,676.31 crore as of March 2023.

Speaking on the merger, Sanjeeb Chaudhuri, chairperson, of IDFC First Bank, said it is an important event for the bank and for all the shareholders as well as IDFC Limited. “We now embark on the next phase of our growth journey towards our long-term vision, and to create sustainable shareholder value in the years to come.”

IDFC First Bank MD V. Vaidyanathan said with this merger, the bank is happy to welcome all the shareholders of IDFC Limited to become direct shareholders of IDFC First Bank.

IDFC First Bank has said it is well placed to consistently grow in a profitable manner, and that shareholders and stakeholders will benefit from such growth, leading to the opportunity for value creation in the long run and for maximising the value and returns to the shareholders.

The merger scheme is subject to the receipt of requisite approvals from all statutory and regulatory authorities.

Notably, HDFC and HDFC Bank officially merged on July 1, 2023. The merger is touted to be the biggest transaction in India's corporate history, which will have combined assets of nearly ₹15 lakh crore, only the second largest after Mukesh Ambani-led conglomerate Reliance Industries (₹17.63 lakh crore).