Ambit says may downgrade IndusInd to sell if Bharat Fin deal goes through

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The price at which IndusInd Bank is being speculated to be considering a merger with Bharat Financial Inclusion (BFI), formerly SKS Microfinance, is expensive and could lead to a 3 percent earnings dilution, according to a note by broking firm Ambit.

Accordingly, Ambit said IndusInd's earnings per share could see a downtick by 8 percent, and it may downgrade the stock to a 'sell'.

Analysts at the firm wrote that the deal is indicated at a meaty valuation of 4.7x trailing book value.

Ambit says that for Bharat Financial, significant write-offs are possible in the near-term. Also, the benefits of a bank platform are exaggerated. “With 72 percent of MFI assets moving to banking platform, whatever little benefits on cost of funds arise will either be eroded by competition or risk being capped,” says the report.

As per media reports, the deal is likely to be announced next month via a swap deal of 7 shares of IndusInd for 10 shares of Bharat Financial.

This implies a valuation at 16 percent premium to current share price of Bharat Financial.