INSUBCONTINENT EXCLUSIVE:
NEW DELHI: Dalal Street analysts are divided on the prospects of the Bandhan Bank stock after news reports surfaced that the newly-listed
lender is looking to acquire PNB Housing Finance.
Some feel the acquisition could lead to several integration risks for the fledgling bank,
which could impact the company’s return on equity (RoE) and erode profitability
And there is another school of thought which believes PNB Housing is the right candidate for the bank
Some analysts see it as a tactical move to bring down promoter holding to meet RBI norms and acquire an asset through an all-stock deal
when the shares are trading at a high
Reports said the Kolkata-based private lender is looking to acquire a controlling stake in PNB Housing Finance
The bank will submit its expression of interest (EoI) soon.
“Bandhan has reached out to a few sovereign wealth funds (SWFs) and global
financial institutions like GIC of Singapore with the prospect of forming a consortium
Singapore’s investment company GIC is also exploring a similar PE-led consortium backed by Blackstone and may soon choose to either back a
strategic group or a fund lend alliance
Bandhan is likely to make a stock offer or a combination of cash and stock against a pure cash bid,” ET reported citing sources.
Global
brokerage firm Macquarie in a report said the move makes little sense business-wise for the newly-listed lender
The deal would give the bank a secured housing portfolio and it may also hope to tap PNBHF’s retail customer base to cross-sell own
However, RoE dilution from such a merger would be substantial for the lender at up to 500 bps, it said.
“There can be no lending
operations under the holding company, other than under the bank
Hence, PNBHF may not be able to retain its individual identity as a subsidiary or sister concern to Bandhan Bank
Under the bank structure, there would be statutory liquidity ratio (SLR) and cash reserve ratio (CRR) requirements for PNBHF’s AUM, which
would erode profitability quite substantially given the low-margin nature of the housing finance business,” the brokerage said
PNBHF is nearly double the size of Bandhan Bank in terms of assets under mgmt (AUM).
Sundar Sanmukhani, Head of Fundamental Research Desk
at Choice Broking, said the move would help Bandhan meet RBI’s norm on promoter holding.
As per RBI, the promoter holding should be 40 per
cent within three years of banking operations
“Bandhan is going to complete three years of banking operations by this month end and the promoter still holds around 83 per cent
Thus, diluting promoter stake in bank via stock offer or a combination of stock and cash offer for PNB Housing will be taken positively by
the market, but concerns over business integration and RoE dilution would be considered negative,” it said.
The Bandhan Bank stock made a
dream market debut in March this year, listing at Rs 499 on NSE, a 33 per cent premium to the issue price of Rs 375
The bank’s Rs 4,473 crore IPO was subscribed 14.62 times
At the issue price, the offer was priced at 10.2 times its FY17 adjusted book value (ABV) and 8.6 times its 9MFY18 ABV.
Till Thursday’s
close, the stock gained 33.5 per cent from listing price
G Chokkalingam, Founder MD, Equinomics Research Advisory, believes it makes a lot of sense for Bandhan Bank to acquire PNB Housing to
It would be highly positive.
However, PNB Housing should not accept entire valuation in terms of stock swap, it said.
“It should insist on
a predominant portion of valuation in cash form
Bandhan, a small bank, trades at an exorbitant valuation of eight times trailing book value, which is costlier than HDFC Bank,”
In Indian market, there is a strong correlation between low retail float and valuation premium
Retail equity float in Bandhan Bank i.e
after excluding promoters, institutional and corporate holdings, is only around 2 per cent
It should not just be a tactical playout enabling this bank to acquire PNB Housing at such phenomenal valuation premium, Chokkalingam
said.
Bandhan Bank reported a 47.5 per cent YoY growth in net profit at Rs 481.7 crore for June quarter, up from Rs 326.5 crore in the same
period last year.
Gross NPA in percentage terms stood at 1.26 per cent at the end of June quarter against 1.25 per cent in March quarter
Net NPAs came in at 0.64 per cent against the earlier 0.58 per cent.
Loan portfolio (on book + off book) grew 52 per cent year-on-year for
the quarter to nearly Rs 32,590 crore while deposit portfolio grew 37 per cent year-on-year to nearly Rs 30,703 crore
Independent market expert Ambareesh Baliga is gung-ho on the bid
He feels PNB Housing is the right candidate for Bandhan Bank, especially in terms of geographical fit, since Bandhan is strong in East and
Northeast, whereas PNB Housing has a good footprint in rest of India, other than East and Northeast.
“Secondly, affordable housing boom is
expected more in Tier II and III locations compared with Tier I cities, and housing finance is an important piece in the bouquet of
As of December 31, 2017, Bandhan Bank had 887 branches and 430 ATMs, together serving over 2.13 million general banking customers
Its distribution network is particularly strong in East and Northeast India, with West Bengal, Assam and Bihar together accounting for 56.37
per cent and 57.58 per cent of its branches and doorstep service centres, respectively
The bank has plans for pan-India expansion.
