IDBI Bank could see a gradual re-rating as Fairfax Financial Holdings’ proposed acquisition progresses, supported by the bank’s improving performance and healthy operating metrics, according to Nitin Aggarwal, Senior Group Vice President and Head of BFSI Institutional Equities at Motilal Oswal Financial Services (MOFSL).
He added, “As this merger kind of concludes and the execution remains well on track, you can expect the valuations to kind of derive gradually from here, and over the coming years you will also possibly see merger that may happen between CSB and IDBI Bank. So that possibility very much remains.”
The Canadian investment group has received the government’s approval to acquire a stake of more than 60% in IDBI Bank for just under ₹53,000 crore. The government and Life Insurance Corporation of India (LIC) will retain a combined 34% stake in the bank.
Aggarwal said the transaction marks a significant shift in the government’s approach towards public sector banks (PSBs) and could have implications for further divestments in the sector.
He believes IDBI Bank is well placed compared with other public sector lenders.
“IDBI makes pretty healthy ROIs, industry leading on the PSB side if you compare, and with a very healthy ratios, operating metrics, be it CASA mix or margins, and even the mix of retail loans all of that places IDBI Bank very well when you compare it to the other PSBs and even to some private banks,” he added.
IDBI Bank was trading at around 1.4 times its last reported book value of ₹57 per share, while its valuation on a forward basis was closer to 1.2 times, he said. The bank could command a higher multiple if it continues to deliver on growth and operating performance.
CSB Bank is another lender in focus amid speculation about a possible merger or stake sale. The stock has faced pressure amid concerns over its liability profile and concentration in gold loans.
According to Aggarwal, IDBI Bank could either merge CSB Bank with itself or divest its stake in the lender. Both possibilities could increase investor interest in CSB Bank.
CSB Bank is trading at a relatively lower valuation than IDBI Bank, and the eventual impact on shareholders will depend on the terms of a potential merger or share-swap arrangement.
“From the current stock price, it makes sense to stay invested in CSB for the owners,” Aggarwal said.
He added that investors should watch for clarity on the proposed corporate action before assessing its impact on the bank’s valuation.
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Fairfax deal could drive IDBI Bank re-rating; CSB Bank merger remains a possibility: MOFSL
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