IDFC bank, Capital First explore merger worth Rs 29,000 crore

MUMBAI: IDFC Bank, which scrapped a deal to merge with Shriram City Union, is said to be exploring a similar deal with the Mumbai-based Capital First, which has more than 5 million customers in retail and small and medium enterprises, said two people familiar with the discussions.

Although the matter has not been taken to board level yet, proposals from investment bankers have reached some top executives of the two companies, said those people who did not want to be identified.

“IDFC and Capital First are exploring merger options and are in initial stage of merging the two,” said a source familiar with the development. “It will help Capital First to enter into banking while IDFC Bank will get a retail franchise.” IDFC and Capital First did not respond to ET’s email query. While a merger would make sense for the companies, valuations could be a hurdle, said one of the persons cited above.


Merged Entity to be Worth Rs 29k crore

Shares of Capital First are trading at 3.19 times price-to-book, those of IDFC Bank at 1.45 times its book value and its parent IDFC is at 0.93 times. In the past week, shares of Capital First has risen 12.52% while IDFC Bank climbed 14.30%.

The merger, if goes through, will create a financial company with a market value of at least Rs 29,080.57 crore that will have businesses across all segments. Capital First has a market cap of Rs 7,728.75 crore, IDFC Bank 21,351.82 crore and IDFC Rs 10,400 crore. The strength of Capital First, in which Warburg Pincus owns 36%, lies in lending to small and medium enterprises. It has built loan assets of Rs 22,974 crore as on September 30, 2017, with 93% of its loan assets in the consumer and MSME financing segments which yield the highest return among all segments of borrowers. The company reported profit after tax of Rs 78.3 crore in the second quarter of the financial year. Capital First rose 1.5% to Rs 781.55, while IDFC Bank fell 0.95% to Rs 62.75 on Tuesday on BSE.

In July 2017, IDFC and Shriram group had entered into an agreement to merge but the two had differences over valuations.