Buy IndusInd Bank; target of Rs 1920: Axis Direct

Axis Direct's research report on IndusInd Bank

The long awaited IIB-BHAFIN merger is finally sailing through with the bank acquiring the MFI in a share swap ratio of ~0.64x, entailing 639 shares of IIB for 1,000 shares of BHAFIN. The deal is happening at a premium of 12.6% to BHAFIN’s two week volume weighted price. Also, a preferential allotment is being made to the promoters of IIB to arrest their shareholding to 15%.

Outlook

The deal enables merger of BHAFIN’s assets and liabilities with the bank, while its infrastructure (employees, branches) will operate as a business correspondent in the form of a wholly-owned subsidiary. On a merged book, IIB would trade at 3.6x FY19E PBV, and we expect the bank to continue commanding a premium based on the ability of management to deliver on expected lines along with superior financial metrics. Maintain BUY on IIB with TP of Rs 1,920.