Shares of GRUH Finance and Bandhan Bank slumped sharply on Tuesday as investors and analysts tried to understand the gains from the merger of the home finance company with the private sector lender.

GRUH Finance shares tumbled by 16.39 per cent and closed at ₹256 on the BSE while scrip of Bandhan Bank also fell by 4.8 per cent and ended the day at ₹477.05.

Valuation of GRUH Finance, leaving the HDFC stable and joining a new business entity with different set of risks seem to be some of the key concerns due to which shares of the housing finance company have fallen more.

“.. for every 1,000 shares of GRHF, shareholders will get 568 shares of Bandhan. This is almost 8 per cent discount to the closing price of GRHF as of January 7 and about 2.5 per cent premium over the last six months’ average price,” Motilal Oswal said in a report.

The boards of Bandhan Bank and GRUH Finance had on Monday separately approved the merger, which is expected to help the private sector lender meet regulatory norms for promoter shareholding and also scale up the reach of both the entities.

Minority shareholders

Shriram Subramanian, Founder and Managing Director, InGovern Research Services, noted that minority shareholders of both GRUH and Bandhan Bank would have concerns over the transaction.

“The minority shareholders of GRUH Finance would feel short-changed and would have realised that price is what one sees and value is what one gets. Eventually, the price of the stock was much richer than the intrinsic value, though even in the stock swap they have got a rich valuation compared to peers. The minority shareholders of Bandhan Bank would feel that the price paid by Bandhan is high due to the compulsion of the promoters to dilute their stake,” he said.

Analysts also believe that the announcement was sudden and are uncertain about the risks for the two entities, which have till now been in very different businesses.

JN Gupta, Managing Director at proxy advisory Stakeholder Empowerment Services, noted that GRUH had the highest PE multiple among housing finance companies.

‘Negative for GRUH’

“The merger brings For Bandhan Bank one step closer to compliance. But from the perspective of GRUH Finance shareholders, it is a bit negative,” he said, adding that if the merger has been done only to comply with RBI dilution norms, then the apex bank needs to relook the ownership norms.

“The issue of concentrated versus diversified ownership needs to be debated and the pros and cons should be listed out and decision should be taken,” he said.

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