Bharat Financial stock surges on acquisition talk

Speculation over a possible acquisition has sent surging the stock of microfinance lender Bharat Financial. The share rose 25 per cent in the last 8-10 trading sessions, and since January the price has more than doubled to ₹963.

BusinessLine , however, learns that there may be no takeover deal, after all.

According to market talk, Kotak Mahindra Bank, IDFC, Aditya Birla group, RBL and IndusInd Bank were in talks to buy Bharat Financial, with IndusInd and RBL the front-runners. When contacted, RBL said it would not “comment comment on speculative lines of inquiry”. A source close to IndusInd Bank board told BusinessLine that though they had studied the deal some time ago, they were not involved in any active talks now.

The key issue is Bharat Financial has no single major shareholder. Promoter Kismat Microfinance owns a minuscule 1.66 per cent. Kismat SKS, a connected entity, too owns just 1.4 per cent while the rest of the 97 per cent is scattered among domestic institutions and foreign funds. Therefore, it is not clear as to whom the potential buyers were talking to.

Yet, the valuation of Bharat Financial has risen to a staggering ₹13,000 crore in less than a year as speculation over a deal kept trader interest intact. Credit Suisse raised its target for the stock to ₹1,055 this week. It has given 18 calls on Bharat Financial in 32 months and raised the target price by 170 per cent, also factoring the deal.

“Any buyout of Bharat Financial is extremely speculative as there would never be any clarity in its deal structure due to scattered shareholding,” said an investment banker in Mumbai.

There is a view that whoever buys the minuscule promoter stake in Bharat Financial will have to make an open offer to mop up more shares to gain control.

“Any bank buying the promoter stake in Bharat Financial will like to make an open offer to gain control, which will further push up its already stretched valuations,” said Sudip Bandyopadhyay, promoter, Inditrade Capital. “Synergies between a lender like Bharat Financial and a mid-size bank may be doubtful due to different cost structures.”

Microfinance cannot grow perennially at high rates with low credit costs due to competition from small banks. Rating agency ICRA expects the return on equity for microfinance lenders to turn negative this fiscal due to drop in net interest margins and a rise in credit costs and operating expenses.

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