Let us not look at the next three days or three months. But in next three years, these could be huge wealth creators, Sanjiv Bhasin, Executive VP-Markets & Corporate Affairs, IIFL Securities, tells ET Now.
What is happening with Bandhan Bank and Gruh Finance? Do you think markets will react in case of a merger?
It will be a positive in the slightly long run. In the short run, we know Bandhan Bank has a problem of getting their shareholding patterns into order but Gruh Finance is a very key NBFC to acquire. So it will turn out to be a very good marriage and it may have very good repercussions in the longer term.
But Gruh Finance is a great asset. It has always been valued by the markets at 8 times, 10 times price to book value. So if it goes to Bandhan, wouldnt people be worried about the quality of asset and what can happen post integration?
Correct. If you see, the other play which has been on a similar count was the merger of IDFC Bank with Capital First. That is a great acquisition and a great merger. Going forward, that is the name of the game.
NBFC/microfinance companies will be acquired by large banks and give them that edge. We saw that in the case of Bharat Finance with IndusInd, then IDFC Bank and this will work out to be a very big positive. Let us not look at the next three days or three months, but in next three years, these could be huge wealth creators.
Last year we saw some interesting M&As in the banking and NBFCs space. This year would also be interesting when the start has been such.We are also talking about Kotak selling some stake. So again it will be a banking led M&A sort of a move this year as well?
Correct. And we know that we will have to come to the adequacy norms of what RBI is stipulating. So first it was Yes Bank, now it is Kotak, they will have to bite the dust, either they dilute equity or they merge inorganic or organically. They have to come within the norms. But given that NBFCs or microfinanciers have been underperforming because of the NBFC fiasco, it will be a very big positive for the recent incumbents to merge — Bandhan and Gruh Finance.
Do you think post these mergers, valuations of some of these niche NBFCs can go up further?
Yes. As a disclosure, we have a very big positive view on IDFC Bank/Capital First merger. We think this stock can double in the next two years.
Do not look at the price multiple right now because there will be the initial problem for the next two quarters but given a two-year scenario, the multiples will become even more attractive and the stocks will outperform given the business environment which is changing towards banks getting more market share from the NBFCs.