IndusInd apparently has $1bn available for the deal; Bandhan promoters too have Rs 10,000cr; we could well have a bidding war for IDFC AMC.
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7.5k crores is the expected bid to acquire idfc AMC?
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With so many suitors now bidding would expect a valuation closer to 6000cr PE firms partner each of four IDFC MF suitors; TPG-IndusInd, Bandhan Bank-GIC among consortia in fray - The Economic Times
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Since the bidding process is being conducted and expected to be completed in March and given the market volatility due to war, will the AMC business still get the valuations as mentioned in the articles shared earlier. HDFC AMC corrected 40% from its 52w high.
If the Russian-Ukraine war will last forever then yes current market conditions will effect valuations, if not there should be no effect. 18 month old start-ups are being valued at $1bn in the private markets, so safe to say its business as usual there.
Valuation upwards of 3800 cr.
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Yesterday Equitas has finalized their merger ratio at 2.31. At the current price of the SFB of 54.4 this works out to roughly Rs 125 per holdco share. The holdco is currently trading at 111, so means the discount is around 11%. IDFC owns1.42 shares in the bank which works out to Rs 57 at current prices. If they get 5,000cr odd for the AMC thatâs another 30 bucks per share, assuming the cash and CG net out. This means the total value is Rs 87 vs 60 the current market price. So the current discount is 31% vs 11% for Equitas holdco. As and when the deal is announced expecting the discount to start narrowing significantly, similar to Equitas Holdco. IDFC is probably a quarter or so behind Equitas in the process so not very significant.
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Thats not accounting for the gain in SFBâs price due to the merger.
I have done a different calculation which accounts for it and the discount comes to ~26%
ESFBL
MCAP: 6748
Price: 53.9
Number of outstanding shares: 1,25,09,89,900
EHL
MCAP: 3799
Price: 111
Number of outstanding shares: 34,16,91,744
EHL owns 93,39,43,363 share of ESFBL (as per latest shareholding data that was disclosed)
Swap ratio : 100:231
=> 93,39,43,363 will be destroyed and (34,16,91,744 * 231) / 100 will be issued
= 93,39,43,363 - 78,93,07,929
= 14,46,35,434 will be destroyed.
Assuming EHLâs subsidiary (vehicle business) is sold at 0rs:
ESFBL new MCAP = 6748 cr (same as it was previously)
New number of outstanding shares = 1,25,09,89,900 - 14,46,35,434 = 1106354466
New share price = 67480000000 / 1106354466 ~ 61
= Gain of 13% for ESFBL shareholders
EHL holders will get 2.31 * 61 worth of share for every share they own
= stock worth 140.91 rs
= Gain of 29.91 rs per share
= Gain of 26.94%
If EHLâs vehicleâs business is sold for > 0Rs then that money will go directly to ESFBL new MCAP and the discount will further increase.
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The price of ESFBL already reflects this amalgamation and the benefits they are getting, it will not suddenly shoot up from 54 to 61 on the day of the amalgamation. The MCap will come down to 54*1106354466 (new lower share count) or roughly Rs 5,974cr.
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So the AMC will sold for more than 4,400 cr as per the article. Looks like we should be happy if it gets 5000 cr valuation now that only two players are in the race.
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Update of Earlier Thesis:
Valuation Arbitrage:
IDFC Ltd is now at Rs.63 and IDFC First Bank is at Rs.40, IDFC Ltd is trading at 1.6x multiple to IDFC First Bank [A year back this multiple is at 0.85x and provided decent arbitrage].
Expected Swap:
If we were to consider the Equitas merger valuation methodology , Current potential swap ratio comes to 1.6x .
| Valuation Method | IDFC Ltd | IDFC First Bank |
|---|---|---|
| Summation Method | 82.07* | |
| Market Price Method | 63 | 41 |
| Comparable Multiples Method | 49.5** | |
| Average Valuation | 72.54 | 45.25 |
| 1.6 |
*Summation Method assumes Post Tax funds from AMC sale at 3800cr.
**Comarable method assumes comparable bank valuation at 1.5 P/B.
Note: Valuation numbers may change if there is a broad based rerating for Banks & Higher than expected amount for IDFC AMC sale.
For folks who are playing this âonlyâ for arbitrage purpose, this is good time to book some gains in IDFC Ltd. When the swap ratio is announced, IDFC ltd will trade at a small discount[Equivalent to futures rollover cost] to the swap ratio - the current price is not offering too much upside for the arbitrage trade.
For Folks who are having long term view on IDFC First Bank, Holding IDFC Ltd at today prices means one is comfortable holding IDFC First Bank at price of around Rs.40.
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What about the Ujjivan swap ratio? What will the valuation be if that is taken, makes sense to include both right?
yes, and I couldnât find the Ujiivan valuation report in the public domain- They might have taken a summation approach for Ujjivan Holdings and a Market price approach for Ujjivan Bank, which will give a number close to the true holding value with minimum discount.
I doubt that will be the case with IDFC Ltd, since
- IDFC First Bank minority will have less voting rights post-merger [Currently there is a capping on max votes a single party]
- There is âCashâ on IDFC Ltdâs Balance sheet along with potential contingent liabilities arising out of the IDFC AMC sale.
- IDFC Ltd history of dealing with IDFC First Bank [Unlike other pure Holdcos, they werenât able to dictate terms to IDFC First Bank]
That said, Equitas valuation is on the conservative side.
Not sure I follow the logic of your three points but IDFC 's valuation will be done by an independent valuer so these three points are anyways irrelevant when discussing the valuation.
Bandhan group will likely acquire the IDFC AMC for 4,500 cr.
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Bandhan Financial Holding Limited, at 4500 Crore it is
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Post tax proceeds from the AMC should be Rs 4,150- 4,200cr or roughly Rs 26 a share. Holding in the bank is 1.42 * 43.45 or roughly Rs 62 per share. So fair value for IDFC is Rs 88 per share and its fair value is 30% above the current price of Rs 68. If you can hold for another 6 to 12 months should be a safe bet.
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The consideration for the Proposed Transaction is Rs. 4,500 crores on a fully diluted basis and subject to customary price adjustments at the closure. This consideration is in addition to receipt of Rs. 250 crores as dividend from IDFC AMC in March 2022
The deal is 4250+250 crores dividend?