IDFC First Bank share price slumped over 5 percent on July 4 after the bank announced the share swap ratio for its merger with IDFC Ltd. Shareholders of IDFC Ltd will get 155 equity shares of IDFC First Bank for every 100 equity shares held.
As of July 3 closing price, IDFC shareholders are getting a premium of 17 percent. The IDFC Ltd stock had already rallied 7 percent on Monday. This indicates a premium of 24 percent based on Friday's (June 30) closing price.
As the risk-reward ratio is favourable for the parent, IDFC Ltd surged 2 percent on July 4 while IDFC First Bank fell 5 percent. At 11:15 am, IDFC First Bank stock was quoting at Rs 79.25 on the NSE, lower by 3.25 percent from the previous close.
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Currently, IDFC Limited through its non-financial holding company holds a 39.93 percent stake in IDFC FIRST Bank. Post the merger, the book value per share of the bank would increase by 4.9 percent, as calculated on audited financials as of March 31, 2023.
Can IDFC First Bank make it to MSCI?
According to Nuvama Alternative Research, IDFC First Bank is the top probable contender for MSCI August 2023 Standard Index inclusion. However, the stock needs to rally close to 10 percent from current levels to touch Rs 85 per share by the third week of July.
"Only then can it make the cut for inclusion. This (price) is as per the latest global cut-off levels and please note cut-off levels keep changing on a daily basis. The potential inflow could be $170 million to $180 million," Abhilash Pagaria, Head, Nuvama Alternative & Quantitative Research said.
The merger is expected to complete this year. As the merger progresses, the spread between the two stocks as per the ratio is expected to contract, he added.
“We will recommend any spread trade only when spread is at adequate levels as per the merger closure timeline," Pagaria said.
Meanwhile, IDFC Ltd is sitting on Rs 600 crore of cash which will come into IDFC First Bank post-merger, said V. Vaidyanathan, the managing director and CEO of the bank to CNBC-TV18.
"We will raise capital worth Rs 2,000 crore by FY24. Capital adequacy will rise further from current levels of 17.4 percent," he said.
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