GRUH Finance - mini HDFC

(SD007) #505

(Marathondreams) #506

Gruh Finance clarification to BSE. Company says " They would not like to comment on it since news is speculative in nature". But goes on to clarify that they continue to explore opportunities…So its clearly not a denial :grinning:

(zulfiqar) #507

Question still remains why they want to merge with Bandhan bank, such a wonderful business with such a long runway ahead as mentioned in their annual reports,

(Sun Light 17) #508

If this merger happens what will be the merits and demerits

As a shareholder of Gruh how am I supposed to read this news

Please help me in understanding

(Kamal) #509

Indian Media started behaving like trade pundits, no sure whats the motivation ? These folks now a days don’t even care about their own credibility. They will come up with random news from their sources and after two weeks time their sources go on vacation to Himalayas to get sidhdhi so that they can predict the next big thing.

Just Curious to know what happened to WB buying KMB stack ? In case, WB changed his mind, isn’t CNBC duty to report that to its viewers ?

(Multiplier777) #510

In my view, the merger should be beneficial to the shareholders of Gruh for the following reasons:

  1. Gruh shareholders are able to leverage their high P/B and will get a large chunk of Bandhan shares on merger

  2. Gruh merges into a higher growing financial lender. I have not analyzed Bandhan but my initial impression is that it is a well run bank

  3. Gruh may have been rejecting some lending proposals where the credit risk was fine but pricing was not suitable for Gruh (minimum NIM needed). With Bandhan having low cost of funds compared to Gruh, the housing finance business of Gruh should receive some fillip in terms of growth.

  4. The price of Bandhan has been under pressure partly a result of RBI’s sword handing over it in terms of promoter holding which needs to be brought down. On merger, this overhang should disappear.

  5. Theoretically, over a longer term, the P/B of Bandhan should move up from existing levels after having acquired a well run business with a long runway. Lets see if this happens.

These are my initial views and willing to be proven wrong.

(Amit Jain) #511

I believe, the minority investor was happily paying-up 60 PE due to herd mentality. However, the management has a clear view of the future. The management knows fully well that no matter how good the company is, there is a price tag. And the current price tag is way too attractive. They may never get a better chance, a better price.

Now that Gruh has lost a stellar parentage, and is into newer hands, I wonder if the investors should pay such a high PE.

(Multiplier777) #512
  1. On merger, Gruh as a separate legal entity will no longer exist and will become Bandhan Bank.

  2. The high valuation that Gruh enjoys is being leveraged to get a high shareholding in Bandhan which is to the benefit of existing shareholders of Gruh.

  3. The desperation of Bandhan Bank to bring down shareholding of promoters in a hurry will also contribute to Gruh shareholder getting a good deal (pure negotiation).

(Amit Jain) #513

Maybe, the forces that stand to benefit from such a merger, were eyeing such a deal, therefore made sure that the stock trades at highest possible valuation to ensure a bang for their buck. They did the job well.

Now that the mission is accomplished, the share price may revert to mean… And that may be a sharp tug from CMP.

Other HFCs are trading sub 15 PE… How far can Gruh sail from the normal.

Given the liquidity related headwinds in the sector normalcy in Gruhs valuations is long due.

(Divyanshu Bagga) #514

In my view, the high valuation of Gruh has less to do with its parentage and more to do with the quality of underlying business. Both, Bandhan and Gruh, are wonderful business catering to same segment of population, so there might be synergy in their merger. Besides, HDFC will now become one of the promoters of Bandhan Bank, with 10% shareholding after dilution and stake sale.

That said, stake sale by HDFC, and possibly also by Bandhan Financial Holdings, to meed RBI requirements may drag down the stock price in coming times.

Disc: Invested in both Bandhan and Gruh pre merger.

(sincyvarghese) #515

Now the question of valuation is settled for ever. Even the promoters do not expect GRUH to command valuations of P/E 60 and P/B 10. Now the question is whether Bandhan is a better value. Even Bandhan is expensive at P/B =7. Muppets like us who held on to GRUH, claiming HDFC parentage were flattering ourselves. So one more lesson learned is valuations do matter. I removed 50% of my holdings in GRUH.

Bandhan is also a good bank and a fast grower but does not have the parentage and legacy of an HDFC. Now we do not know if there is going to be a merger between HDFC and HDFC Bank. Anything is possible. Why did they not merge GRUH with HDFC is a question I still have no answers. Does HDFC only want home finance business where the ticket size is more than 25 lakhs?

(Amit Jain) #516

From the business perspective,

HDFC is selling Gruh @ PE is 55, which means if the business were to operate at current efficiencies then the operations itself will take 55 years to give back Rs.300 in total earnings per share to HDFC.

Gentleman, 55 years… is a long time.

And if it is getting this 55 years of income almost instantly, then its a great decision.

It is clear that the sector has headwinds, the numbers are unlikely to improve in the next few years. They may even get dramatically worse. If so, then its share price will be hit hard due to so much expectation grilled into the price… PE 55 !! Therefore, now is the best time to get out.

So HDFC took a good decision. It will reinvest the sums from this merger into its core operations, where there is visibility in earnings.

(Divyanshu Bagga) #517

Being able to monetize the entire future cash flows, not just that of 55 years, is the true purpose of stock market. Ofcourse the estimate of future cash flows vary widely with change in risk perception, and so does the stock price.

Whether it was a great decision, only time will tell. We should keep in mind, that HDFC is not selling, but merging Gruh with Bandhan. If not for RBI restrictions, it may have opted to not obtain any cash from the deal. After the deal we will have another bank with HDFC as promoter with significant stake.


If the rumors are true, I don’t get why HDFC would want to sell GRUH as GRUH finance operates in a niche area and they have spent a lot of time to get to this stage. There is a long runway for growth in this niche and there is no big competition as well. So, why sell it?


Not a rumor anymore. Confirmed by GRUH & HDFC now

(mrai74) #520


(Julian) #521

An article which explains why HDFC is paring stake in Gruh Finance

(Divyanshu Bagga) #522

I hate to admit, but either you were right, or a lot of Gruh investors seem disappointed with the deal, as the share price came crashing down.

(phreak) #523

It is only logical that when there is such a thing as value-unlocking in a de-merger, the reverse must also be true?

(Divyanshu Bagga) #524

That is also a possible explanation, but that does not explains why Gruh shares went up on rumours but down on actual news of merger.