Following HDFC Bank HDFC merger, IDFC First Bank IDFC merger has been announced, signaling some more such mergers to follow. The move is expected to help corporates to become a bigger business entity in India and global merchandise. It would also enable corporates to improve their margins and deliver better quarterly numbers in coming quarters, which is expecting to bring more foreign investment in the Indian stock market (in case of merger of listed entities). According to experts, these mergers would make such companies to raise fund with ease as they would emerge as ‘too big to fail’ as a corporate.
Speaking on the benefit coming to these corporates after the merger, Chandan Taparia, Derivative and Technical Analyst at Motilal Oswal said, “HDFC twins merger and IDFC First Bank IDFC mergers are going to enable these entities to improve their margins as Indian as well as global corporates are facing huge challenge on margin improvement front. After the merger, corporates will be able to contain their expenditure without putting any added pressure on their clientele. Apart from that they would get an additional cash reserve after the merger, which is also a positive sign for these companies after merger.”
Possibility of Improvement in balance sheet
On how these margin improvements would benefit India Inc, Chandan Taparia said, “Improvement in margins would lead to strong balance sheet of the companies helping them to come with better quarterly numbers. In other words, we can say that mergers would help a company to improve its fundamentals, which will attract more portfolio investment, leading to sharp upside in their share price.”
On vision behind such move, Avinash Gorakshkar, Head of Research at Profitmart Securities said, “Such mergers are new in India but not in global business. After the inception of WTO (World Trade Organisation), we witnessed a good number of Japanese corporates merging their subsidiaries with their flagship umbrella companies and emerge as a giant corporate, which all of a sudden emerged as one of the major market leader in the global economy. This model was replicated in China later as well. This helped them create a giant corporate that had a say in the global business system the way HDFC Bank all of a sudden emerged as fourth biggest bank in the world after the merger.”
Ease of raising fund
Avinash Gorakshkar said that after the merger, the emerging entity would be able to generate fund with ease as they will govern a better face value in global and domestic market. So, these mergers are going to provide ease of doing business without getting support from any outside entity. He said that some more corporates are going to follow the footsteps of HDFC twins merger and IDFC First Bank IDFC merger and said that Equitas Small Finance Bank and Equitas merger is also doing the rounds. Ujjivan Small Finance Bank and Ujjivan merger is also hitting the headlines.
“Though, these SFBs are small in size and they continue to remain smaller even after the merger, but their corporate governance and balance sheet is definitely going to improve after the merger. If a big corporate like HDFC Bank would be able to dictate on global levels then small SFBs would be able to create a conducive milieu at domestic levels with this merger pun,” said Avinash Gorakshkar.
IDFC First Bank IDFC merger
The Board of Directors of IDFC First Bank Limited at its meeting held on Monday, July 03, 2023, approved the Scheme of Amalgamation of IDFC limited with IDFC First Bank. The Share Exchange Ratio for the amalgamation of IDFC Limited with IDFC First Bank shall be 155 equity shares of face value of ₹10 each fully paid-up of IDFC First Bank for every 100 equity shares of face value of ₹10 each fully paid-up of IDFC Limited.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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