IDFC First Bank shares plunge 6% post merger announcement

economictimes.indiatimes.com:

IDFC First Bank on Tuesday dropped up to 6% to the day's low at Rs 77.10 as the share swap deal with parent IDFC appeared skewed in favour of the latter. IDFC stock was trading 0.6% higher after hitting a 52-week high at Rs 115.70. As part of the share exchange ratio for the merger, IDFC shareholders would get 155 shares of IDFC First Bank for every 100 shares held in the former.

At Monday's closing price, the spread favours 16.3% for IDFC shareholders. Nuvama Institutional Equities recommends any spread trade only when the spread is at adequate levels as per the merger closure timeline. «Hypothetically, if the spread is available at 13% — 14%, then it’s a good level to enter, but that looks unlikely to happen,» Nuvama's Abhilash Pagaria said.

IDFC First Bank is also one of the top contenders for inclusion in the MSCI August 2023 Standard Index. «At Rs 81.7/share – the stock needs more than a 4% jump (around INR 85/share) till the third week of July to make the cut for the inclusion. The potential inflow could be $170 to $180 million,» Pagaria said, adding that the merger won't impact its chances of inclusion in the global index.

The only possible deterrent could be the stock not meeting the price cut-off level requirement, the analyst said. Completion of the merger, subject to approvals of various regulatory bodies, is likely to take anywhere around 12 to 15 months. IDFC holds about 40% stake in IDFC First Bank through IDFC Financial Holding.

IDFC is completely held by the public. As of March-end, IDFC First Bank had total assets of Rs 2.4 lakh crore and a turnover of Rs 27,194.51 crore. For FY23, the bank reported a net profit of Rs 2437.13 crore.