Reflexivity. You have to worry about both now.
Sorry Didnot understand…too short a reply 
… Pls elaborate… Its quantity of share swap deal not price of share concerned right…i will get 5 shares of bandhan, so why to worry of gruh share price.
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Both prices will influence each other going forward. One is not independent of another.
It was for someone who has Bandhan as of today. He can covert those Bandhan to Gruh at the current rate. He will get higher number of Bandhan after conversion. So for today’s price there is arbitrage opportunity.
Regarding your comment, theoretically yes… ultimately you are going to get bandhan and if it is not falling then need not worry. You are locked in till the record date… Ideally the arbitrage should narrow down. ( now if bandhan adjusts down or gruh adjust upward is a big question ).
If the deal fails, Gruh will bounce back. Either way, you are better off converting your Bandhan shares to Gruh.
After the deal announced officially on 7th evening Gruh fell 23.6% in two days of trading and Bandhan fell 8.6%. Now earlier Gruh was expensive and now Bandhan is relatively expensive . In a few days, I believe many long term holders of Gruh will complete sell off and then both should move in sync like it did for Capital first/ IDFC bank merger.
I observed both fell substantially after the merger announced in the case of CAPF+IDFC bank. Hence I sold out after leaving a insignificant shares. I would revisit this after regulatory approvals of merger. As @phreakv6 mentioned, if value unlocking is there in a demerger, the reverse should be true here. Let us wait and watch. For me it is good to watch two bank+NBFC mergers and learn a few lessons.
Looking at delivery percentage it is quite evident that both have become sorter’s paradise for last few days
Think of someone who doesn’t own either bandhan or Gruh but he is convinced with marriage proposal and expect bright, talented kids in next 3-5 year time so he decides to invest. He has two options, he can either buy Gruh share or Bandhan share.
--------calculations based on closing price as of 9th Jan------------
Gruh 1000 share = 233 x 1000= 233000
Bandhan 567 share = 455 x 567 = 258000
Based on above calculations buying Gruh share is more profitable, on record date anyway Gruh share will get converted into Bandhan share, so investing in Gruh as on date itself has 25K gain. More Gruh price falls (as more investors will exit) this gain increases.
So best strategy is to wait for prices to stabilize and then buy Gruh shares, worst case due to some random reason if this marriage fails, gruh price will bounce back and will definitely benefit investor.
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What if Bandhans share price falls more compared to Gruh by the record date? This is like one bubble absorbing another bubble. Whatever be the short term gains, I am not touching either of them. Gruh because it is overvalued and about to be merged and whose separate identity will be choked for ever. Bandhan because the equation is not in its favour right now but mostly because I am hearing HDFC laughing.
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Whether to stay invested or not depends on your conviction on the HDFC management. The gains from Gruh sale, would accrue only after a few years(assuming they monetise the Bandhan stock). I would trust them to not short-change Gruh shareholders as Gruh anyway forms a very small part of HDFC’s empire.
News reports citing that HDFC is the sole beneficiary of this marriage, must realise that HDFC would gain only if the combined entity’s market value increases substantially. They intend to hold the 15%(or 10% atleast if the approval doesnt come). They wouldn’t have merged if Gruh was getting a bad deal, would they? The only important question is, do you trust HDFC leadership?
To me personally this was a welcome correction to buy a very decent quantity at a very attractive price. Only negative I see is HDFC not taking a board seat in the Bank.
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Fair point. So many people seem to be missing the difference between an Amalgamation and a Share Sale. In fact, at the moment, stake sale is only conditional depending upon RBI approval.
Management of Gruh would majorly continue and it’s area of operations would hopefully not be affected.
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People are not considering the fact that cost of funds for Bandhan is less than Gruh. This benefit of COF will lift ROA of Gruh’s Assets. This way Gruh portfolio return will match with Bandhan, also Gruh will replicate its model in many other areas immediately. This 20% grower will start leaping. Prejudices will never let us understand and analyse. I never thought Gruh was expensive. Yes it was not a quick money game but it was a fit as long term portfolio stock for me. HDFC is not laughing selling its stuff costly. These are analysts in media who are making fun of Bandhan and praising HDFC for tricking Bandhan. I dont agree with all this stuff. HDFC is not a fly by night operator and they can not become rich by tricking 2000-3000cr rupees. I see this deal benefiting bothe side. Bandhan is in a big gain as they have opportunity to divert their assets in home loan with high ROA safely. Also this segment of home loan is immense, can not be quantified. In long term its a win win for both. Pure Micro finance is always risky, everybody understands. Market will realize this fact one day.
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Perhaps someone who has studied Bandhan bank would be kind enough to share their opinion on its management. Prima-facie the numbers seem very good. Pre-IPO they managed an ROE of ~28% with a good CAR.
Bandhan has its own legacy, and proven mngmnt capability. It has become a 60/70K cr market cap company starting from a capital of 1.5Lakh in a small garage. Why we are testing it with HDFC mngmnt I do not understand. HDFC mngmnt has seen some value in it so they are going with this merger. Whatever the term it may be, strategic or financial investment, they have seen some value investing in this business so they are joining Bandhan.
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Other HFC’s havent been able to replicate Gruh’s model (how else would GRUH manage 30% ROEs consistently?). With this merger, Gruh gets the huge ~1.5crore captive customer base, that too of eastern India where they had no presence until now. Imagine the possibilities ahead!
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Cost of fund for Bandhan is 6.3% and for Gruh is 7.55 %. ROA for Gruh is 2.57 and Bandhan is 4.3. So Gruh portfolio can increase ROA by 1.25 % and hence can increase to 3.82. Gruh is highly leveraged as its assets are safe. Bandhan is not leveraged as its assets are not safe, 86% is micro lending. Bandhan can simply replicate Gruh business model and increase leverage, ROE will shoot up. It will reduce micro portfolio too. Let us see how things take shape.
Disclosure- Not invested in any. Now studied Bandhan bank so considering seriously. Not in hurry as I have reservations with Micro.
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HDFC also gains by going very aggressively in low-income housing as there is no conflict of interest with Gruh now. Low-income housing growth has been highest in HDFC portfolio since last year.
HDFC also diversifies its business/asset base by getting a stake in micro-finance business.
So, it is a strategic move by HDFC, which may not be necessarily driven by expected increase in share price of Bandhan Bank and hence sum of part valuations.
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Hdfc path is micro lending but mostly the tie up is with builders whoa are in affordable segment. Gruh i believe ia nbfc model and go to vustomer model. These there iwill be common segment where they might compete. But if Bandhan is smart they will have non compete in the buy clausse and use of Gruh finance as the brand vehicle. And more or so Gruh share holder have to have faith in HDFC wisdom to shed and credibility of Bandhan to grow.
Gruh Finance has been beat and shareholders are feeling a shock like no other. A great brand, a great business, people were ecstatic at PE 60, and it seemed somewhat alright too, but now the stock is at PE 35… who knew that it was all hanging on a fine thread.
Gruh still has great numbers, could you guys please shed some light on the prospects of the company, its near future and a proper valuation. Its peers, Can Fin homes, PNB HF, LiC HF are trading around PE 10 to 15.
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Announcement of its merger with Bandhan Bank has turned as Black Swan event for it.
With Bandhan Bank there are lot of synergies but only time will tell the upcoming picture. With current valuation it will give market leader but won’t enjoy high PE status in future.