How Brokerages View Indiabulls Housing Finance-Lakshmi Vilas Bank Merger

Indiabulls Housing Finance Ltd. proposed merger with Lakshmi Vilas Bank may run into regulatory hurdles given the housing finance company’s real estate exposure, brokerages said.Shareholders of Lakshmi Vilas Bank will get 14 shares of Indiabulls Housing Finance for every 100 shares as part of the merger. The biggest concern around the deal is whether the proposed transaction will get Reserve Bank of India’s approval.Here’s what the brokerages have to say on Indiabulls Housing Finance-Lakshmi Vilas Bank merger:Macquarie On Indiabulls Housing FinanceMaintain Outperform with Target Price of Rs 836Odds are stacked against RBI approvalIn the past, RBI wielded considerable subjectivity allowed to it under the ‘fit & proper’ clauseDespite having persons with good credentials on its board, Indiabulls failed to get license earlierDon’t think approvals to Bandhan-Gruh, IndusInd Bank-Bharat Financial, Capital First-IDFC Bank will mean a nod in this case as wellBandhan and IndusInd Bank were large banks taking over smaller NBFCsCapital First did not have real estate exposureInvestecMerger may face regulatory hurdles; not much upside for IndiabullsGroup’s exposure to real estate may pose hurdleIndiabulls Ventures Ltd. is kept outside the merger, which is not allowed as per RBI guidelinesMerged bank likely to be weak given just 23 percent CASA at LVB, and Indiabulls’ dominant mortgage book, a low return on assets productCredit SuisseSwap ratio implies 10.5 percent dilution for Indiabulls Housing FinanceReturn on equity to drop to 10 percent in the first year of merger vs 24 percent currentlyHigher reserve requirement, priority lending, higher operational expenditure to weigh on RoEGiven LVB’s weak deposit franchise, funding cost benefit will be limited in near termIndiabulls will get access to more stable funding, RBI’s repo window, will also be able to operate at a higher leverageStay neutral with stock trading at 2xFY21 merged bookProgress on RBI approval and branch/deposit franchise scale up will be keyCLSAShare swap ratio implies 35 percent premium to LVB’s market price or 2x p/book for LVBApprovals could take six to nine monthsPromoters open to trim shareholding to 15 percent post mergerIHFL will also comply with norms on SLR, CRR and PSLJP MorganLVB acquisition a key positive for Indiabulls Housing FinanceBook Value per share dilutive by 10 percent but offset on deposit acquisitionRBI approval key to watch

How Brokerages View Indiabulls Housing Finance-Lakshmi Vilas Bank Merger

The biggest concern around the deal is whether the proposed transaction will get Reserve Bank of India’s approval.

Poland Scrambles Jets, Shuts Over Russian Drones

RECOMMENDED FOR YOU

CFO Leaders: The Making Of Five Star CFOs

Stocks Rise, Treasuries Fall on Stimulus Bets: Markets Wrap

Stocks End Record-Setting Week With Further Gains: Markets Wrap

The Mutual Fund Show: The Dos And Don’ts Of Online Investing

POPULAR

How Brokerages View Indiabulls Housing Finance-Lakshmi Vilas Bank Merger

The biggest concern around the deal is whether the proposed transaction will get Reserve Bank of India’s approval.

Poland Scrambles Jets, Shuts Over Russian Drones

RECOMMENDED FOR YOU

CFO Leaders: The Making Of Five Star CFOs

Stocks Rise, Treasuries Fall on Stimulus Bets: Markets Wrap

Stocks End Record-Setting Week With Further Gains: Markets Wrap

The Mutual Fund Show: The Dos And Don’ts Of Online Investing

POPULAR

Tata Elxsi Shares Upgraded To 'Add' By HDFC Securities On Improving Growth Trajectory — Check New Target Price

US-India Trade Talks: 'Markets Will Welcome Trump And Modi's Renewed Tariff Push' — Check Expert Reactions

Stock Market LIVE: Nifty Reclaims 25,000, Sensex Gains Over 400 Points As Trump Signals Tariff Truce

Oracle Fin Services Rise Most In Four Months Due To This Key Trigger

Robinhood Aims New Social Platform At Reddit's WallStreetBets