MERGER &

ACQUISITI
ON
IDFC BANK LTD.
& CAPITAL FIRST
LTD.
Project
Report

i
INTRODUCTION

I have chosen IDFC Bank Ltd. and Capital First Ltd., for the project of analysis of merger
and acquisition.

Following the failure of the IDFC Bank-Shriram Group merger due to valuation issues, IDFC
Bank Ltd. and non-banking financial company (NBFC) Capital First Ltd. has announced the
completion of their merger which will be resulting in a joint loan asset book of 1.03 lakh
crore for the merged entity IDFC First Bank. IDFC First Bank will be the name of the
merged company.

The merger between these two entities was announced on January 13, 2018. According to
the agreement of the merger, the new entity's shareholders will get 139 shares of IDFC
Bank for every ten shares of Capital First, which is backed by Warburg Pincus. The retail
loan portfolio will account for 32.46 percent of the total loan book.

The merger was with IDFC's goal of reaching six million customers by 2020 in mind. If the
deal goes through, the bank's retail loan portfolio will grow from 26 percent to 50 percent.
And, if IDFC strikes it rich again with this contract, it will be able to achieve its goal of
transitioning from a dedicated infrastructure financier to a well-diversified universal bank.

Although Capital First and IDFC seem to be similar in size if the transaction will clear any of
the regulatory barriers along with the cultural clashes that so frequently plague mergers.
The merger would benefit from cultural and technological synergies. The deal makes sense
for IDFC because it allows it to increase its distribution base by adding 228 Capital first
branches.

If the merger goes ahead, the two companies will have Rs 88,000 crore in assets under
administration and a client base of 50 lakh. Capital First will be benefited from the
transaction in terms of the swap ratio, as the firm is highly-priced thanks to its 12 percent
return on equity. Existing shareholders of IDFC Bank and Capital First will keep 71.2
percent and 28.8 percent of their companies, respectively. Following the merger, Rajiv Lall
will replace as MD and CEO of the new company by V Vaidyanathan, chairman and
managing director of Capital First.

2
 COMPANY OVERVIEW (IDFC BANK)

IDFC Bank (Infrastructure Development and Finance Company Bank) is an Indian bank that
owns a majority of IDFC Limited, an Integrated Infrastructure Finance Company. The IDFC
crisis offers excellent learning opportunities for all those involved. It’s headquarter is in
Mumbai. It is an integrated infrastructure finance firm.
After receiving a universal banking license from the Reserve Bank of India in July 2015, IDFC
Bank began operations in October 2015. The company's headquarters are in Mumbai. It
currently has 242 office locations, 102 asset management locations, and 354 rural locations.
IDFC Ltd applied for the bank's license and was one of only 26 companies to pass the rigorous
inspection process and be granted the license. It was followed by Bandhan Bank as the first
infrastructure lending firm. Since its inception in 1997, the Reserve Bank of India has granted
the IDFC a license due to its varied ownership and brand value.
 Company summary: Though it had extensive infrastructure lending expertise, it lacked
retail banking experience (in comparison to the other banks). The bank was founded with
three objectives:

1. Using the current network, establish a corporate bank.

2. To establish a retail or banking sector with a primary emphasis on tier-1 cities.

3. To establish a bank with a solid technical foundation.

3
 COMPANY OVERVIEW (CAPITAL FIRST)

Capital First Ltd. was a non-bank financial institution in India that specialized in debt finance for
small businesses, MSMEs (Micro, Small, and Medium Enterprises), and Indian customers.
The organization was at first recorded on the Indian Stock trades in January 2008 as Future
Capital Holdings. In between 2008 and 2010, the organization dispatched various
organizations including financing land designers, corporate credit, private value, resource the
executives, unfamiliar trade business (through joint endeavor course of action), retail broking
business (through joint endeavor plan), shopping center administration, abundance the board
and property administrations.
In the year 2013–14, the company received the Housing Finance Company (HFC) License
from National Housing Bank (NHB) for its wholly-owned subsidiary Capital First Home Finance
Limited. Capital First also launched new products like SME business loans, personal loans,
and affordable housing, and scaled up the existing businesses.
With this separated innovation, the organization currently brags of its quality in more than 225
areas all over India. In a range of only 8 years, the organization as on 30th September 2018
had fabricated advance resources of near ₹32622 Cr, with the credit resources in MSME
space contributing 91% of the complete financing.
 Company summary: The organization was founded with three objectives:

1. To be a leading monetary administration supplier appreciated and regarded for high

corporate administration, morals, and qualities.
2. To uphold the development of MSMEs in India with obligation capital through
innovation-empowered stages and cycles.
3. To fund the goals of the Indian Consumers utilizing trendy examination and innovation
arrangements.

4
 BENEFITS (SYNERGY) OF THE MERGER

The consolidation is a success - win for the two organizations. IDFC Bank will gain a fantastic
retail credit portfolio, while Capital First will be able to pursue its financial ambitions. IDFC
Bank, which began operations in October 2015 after receiving a financial permit, primarily has
a credit book of advances for the framework. On the opposite side, Capital First is available in
the retail portion where IDFC is endeavoring to develop a retail establishment.
Capital First has a superior financial track record in terms of resource efficiency, with gross
non-performing assets of less than 1.5 percent, while IDFC Bank has a higher gross non-
performing loan proportion of 3.9 percent. IDFC Bank's credit book has been upgraded after
the cuttings of a portion of its loss credits to capital remaking firms.
In the stock trade, Capital First orders a higher premium, trading at 3.6 times the book and
32.6 times a PE on the valuation front. IDFC Bank, on the other hand, cites 1.5 times the book
value when exchanging 22.3 times the PE.
IDFC Bank will have a retail book of Rs 22,974 crore and a 3 million customer base will be
approached. After consolidation, the blended entities would have an AUM of over Rs 88,000
crore and a benefit of Rs 1268 crore.
The new integrated feature on the stock exchanges is expecting to be worth more than Rs
33000 crore. While the restructuring will increase working expenses in the short term,
examiners believe that the consolidation will favor the joint venture in the long run as the
synergistic advantages of lower costs and economies of scale increase.
The combined organization will represent 7.2 million clients across its 203 bank branches, 129
ATMs, and 454 journalist rural sector habitats spread throughout the country in both urban and
rural areas. IDFC First Bank NSE 1.16 % will now provide retail and discount banking services
to a large number of customers.
IDFC Bank exchanges at Rs 67 while Capital First at Rs 837 on the bourses. Adapting to the
offer trade proportion of 139 IDFC Bank shares for 10 Capital First offers, the supply of the last
could see a potential gain of around 11%. (PURCHASE CONSIDERATION)

5
ANALYSIS OF THE MERGER

 The merger of Capital First Ltd. and IDFC Bank Ltd. has been authorised by the
Honorable National Company Law Tribunals of Mumbai and Chennai, and the two
companies will act as one organisation beginning December 18, 2018.
 This merger is the inorganic expansion strategy followed by both the entities. This was a
congeneric merger as both the entities belongs to the same industry i.e. financial
services but their set of customers are different. IDFC Bank have customer base related
to retail services while Capital First have customer base related to wholesale services.
 IDFC was receiving better returns on its loan books in the wholesale market because it
was dealing with even riskier investments with a high NPA opportunity. One of the goals
of the deal was to grow in the retail sector and reduce the number of nonperforming
assets. However, this resulted in a lower return on investment in the retail market, as
seen by the decrease in the Net Interest Margin following the merger.
 For IDFC Bank, the objective is to 'retailise' its business, while for Capital First, it's to
change into a 'universal bank'. Monetarily and operationally, this consolidation will be
synergistic, esteem accretive and give a chance to the new administration drove by V.
Vaidya Nathan as MD and CEO to assemble a hearty financial establishment.
 The merger provides us with a fantastic opportunity to expand our financial capability,
act as a greater universal bank, and provide significant benefits to our clients.
 IDFC Bank and Capital First consolidation will profit the investors of both monetary firms
in the long term, in the current situation, investors of Capital First could see a negligible
potential gain to adapt to the offer of share proportion.
 IDFC Bank exchanges at Rs 67 while Capital First at Rs 837 on the bourses. Adapting
to the offer trade proportion of 139 IDFC Bank shares for 10 Capital First offers, the
supply of the last could see a potential gain of around 11%. It entails a 40 percent
weakening for IDFC. IDFC's shareholding in IDFC First Bank has been reduced to
37.6%, and the company may buy shares on the market or inject cash into the bank to
restore its ownership to 40%. The merged entity would have more than 32% of retail
resources, as well as a setup stage (the two substances have invested in construction
times, foundations, and foundation), a larger product suite, ample funding, and the
ability to grow on a manageable basis.
 The consolidated substance of IDFC Bank and Capital First will have an AUM of Rs
88,000 crores, a PAT of Rs 1268 crores (FY 17), and an appropriation organization of
194 branches (according to branch consider of the two elements of December 2017),

6
353 devoted BC outlets, and more than 9,100 miniature ATM focuses, overhauling more
than 5,000,000 clients the nation over.

7
 NEWS ANALYSIS

Both bank creating combined loan asset book of Rs 1.03 lakh crore for the merged entity after
the merger IDFC bank also approved the appointment of Rajiv Lall founder MD & CEO of
IDFC Bank as part time non-executive chairman of IDFC First bank and get approval from the
RBI and IDFC First bank after merger they offer a wider array of retail and wholesale banking
products services and digital innovations and also add the greater number of customers
segments etc. this all benefits after the merger and across 7.2 million customer through its 203
bank branches included 129 ATN and also 454 rural business correspondent centers.
In July 2017, IDFC Bank and Shriram Group, a financial services company backed by the
Piramal Group, agreed to merge. The offer was eventually called off in October 2017 after both
parties couldn't agree on a share swap ratio.
This merger will help both the entities to strengthen their current capabilities and build new
opportunities for future.
Shareholders who own 10 shares of Warburg Pincus-backed Capital First will get 139 shares
of IDFC Bank as part of the merger deal. IDFC First Bank has a total of 1,02,683 crore in on-
book loan reserves. The retail loan portfolio will now account for 32.46 percent of the total loan
portfolio. Updated: 19 Dec 2018, 02:09 PM IST
Source- https://www.livemint.com/Companies/nN8S5UjphAe4EjLTxmZ0IM/Capital-First-
merges-with-IDFC-Bank-to-create-IDFC-First-Ban.html

2. IDFC Bank and Non-financial company capital merged on 18th December 2018 , after
merged shareholders’ approval pass for change the name because a merger is the
combination of two firm and then entity to be called IDFC First Bank , as per company Act
2013 & Banking regulation Act if any bank or company want to merged then they will take an
approval from National company law tribunal and also approval from the RBI and as part of the
merger agreement between both the bank shareholders will received 139 shares of IDFC bank
for every 10 share held of Warburg Pincus – backed capital first . This merger helps to the
both bank because after merger incredible opportunity to strength for the banking capabilities
after the merger direct effect on the stock price of both share IDFC Bank closed 4.71% higher
at Rs 41.10 on BSE and capital first closed 5.13% up at Rs 567.80. December 19, 2018 |
Updated 09:06 IST
Source- https://www.businesstoday.in/top-story/idfc-bank-acquires-capital-first-creates-idfc-
first-bank/story/302177.html

8
PRE-MERGER ANALYSIS OF IDFC BANK

Calculation of P/E ratio, P/S ratio, P/BV ratio, EV/EBITDA, EV/Sales, EV/BV of
Equity and Debt:
For the Year 2016
Price to Book Value
Company Name Price to Earning Ratio Price to Sales Ratio Ratio
       
Axis Bank Ltd. -165.7289003 39.4257989 2.904266762
Federal Bank Ltd. 10.63609467 9.478395591 1.527512216
H D F C Bank Ltd. 25.01594614 109.6680494 4.911469023
I C I C I Bank Ltd. 30.91712707 56.87222684 3.744396119
Kotak Mahindra Bank Ltd. 53.2910401 177.4650994 13.0218939
Yes Bank Ltd. 5.503875969 21.90007657 0.043313812
       
Industry Average -6.727469384 69.13494112 4.358808638

Minimum -165.7289003 9.478395591 0.043313812

Average -6.727469384 69.13494112 4.358808638
Maximum 53.2910401 177.4650994 13.0218939

Equity Price Range

  Earning Per Share Sales Per Share Book Value Per Share
IDFC BANK LTD. 2.34 1.194364832 40.18
Minimum -387.8056266 11.32066236 1.740348951
Average -15.74227836 82.57234232 175.1369311
Maximum 124.7010338 211.9580736 523.2196969
1.7403-523.219
Range in (₹) (387.805)-124.701 11.320-211.958  

9
 Enterprise
Enterprise Value/BV of
Company Name Value/EBIDTA Enterprise Value/Sales (Equity+Debt)
       
Axis Bank Ltd. 6.038780876 4.94906E-05 0.245170719
Federal Bank Ltd. 1.794792073 8.02407E-06 0.027750378
H D F C Bank Ltd. 15.11290936 0.000116546 0.663571603
I C I C I Bank Ltd. 7.619832636 6.32988E-05 0.228310328
Kotak Mahindra Bank Ltd. 23.3357606 0.000169674 0.290489249
Yes Bank Ltd. 10.52164256 8.67839E-05 0.853095485
       
Industry Average 10.73728635 8.23028E-05 0.384731294

Minimum 1.794792073 8.02407E-06 0.027750378

Average 10.73728635 8.23028E-05 0.384731294
Maximum 23.3357606 0.000169674 0.853095485

Firm Price Range

  EBIDTA Sales BV of Equity and Debt
IDFC BANK LTD. 3,648.83 4,052.03 59525.5
Minimum 6548.891159 0.032513753 1651.855155
Average 39178.53255 0.333493576 22901.32262
Maximum 85148.22333 0.687524073 50780.9353

Range in (₹) 6548.891-85148.223 0.0325-0.687 1651.855-50780.935

YEAR-2016

In the year 2016, IDFC Bank’s Earning Per Share was 2.34, which is far higher than its
industry’s average EPS: about -15.74. According to these criteria, IDFC Bank’s business
value is much higher than that of the average of its competitors.

IDFC Bank’s has a P/Earnings ratio of 20.60, which is much higher than the industry
average of -6.72. According to the equity multiplier, IDFC Bank's business value is much
higher than the stock valuation of its industry.

Hence, we can say that the stock of IDFC Bank was overvalued in the year 2016 as
compared to the average of the Banking sector.

10
Calculation of P/E ratio, P/S ratio, P/BV ratio, EV/EBITDA, EV/Sales, EV/BV of
Equity and Debt:
For the Year 2017
Price to Earning Price to Sales Price to Book Value
Company Name Ratio Ratio Ratio
       
Axis Bank Ltd. -166.57289 35.48731167 2.797319933
Federal Bank Ltd. 10.66568047 11.27032495 1.390817901
H D F C Bank Ltd. 24.64121191 93.95420055 3.983587305
I C I C I Bank Ltd. 30.8839779 52.49355356 3.360384731
Kotak Mahindra Bank Ltd. 53.2033208 158.9364431 11.32015731
Yes Bank Ltd. 5.445736434 17.10386218 0.0290812
       
Industry Average -6.955493752 61.54094933 3.813558064

Minimum -166.57289 11.27032495 0.0290812

Average -6.955493752 61.54094933 3.813558064
Maximum 53.2033208 158.9364431 11.32015731

Equity Price Range

  Earning Per Share Sales Per Share Book Value Per Share
IDFC BANK LTD. 3 2.808417956 43.18
Minimum -499.7186701 31.65178296 1.255726202
Average -20.86648125 172.8327071 164.6694372
Maximum 159.6099624 446.3599607 488.8043927

Range in (₹) (499.718)-159.6099 31.651-446.359 1.255-488.804

Enterprise Enterprise
Company Name Value/EBIDTA Enterprise Value/Sales Value/BV of
11
 (Equity+Debt)
       
Axis Bank Ltd. 5.616346035 4.45008E-05 0.231584731
Federal Bank Ltd. 1.592672325 9.54584E-06 0.02654585
H D F C Bank Ltd. 12.9976338 9.9936E-05 0.592458497
I C I C I Bank Ltd. 7.140227993 5.84317E-05 0.22183138
Kotak Mahindra Bank Ltd. 20.29075522 0.000151947 0.283446892
Yes Bank Ltd. 8.449338281 6.83188E-05 0.653816185
       
Industry Average 9.347828943 7.21134E-05 0.334947256

Minimum 1.592672325 9.54584E-06 0.02654585

Average 9.347828943 7.21134E-05 0.334947256
Maximum 20.29075522 0.000151947 0.653816185

Firm Price Range

  EBIDTA Sales BV of Equity and Debt
IDFC BANK LTD. 8,532.71 9,545.83 93869.42
Minimum 13589.81107 0.091123008 2491.843575
Average 79762.3135 0.688382294 31441.30464
Maximum 173135.13 1.450462833 61373.34608

Range in (₹) 13589.811-173135.13 0.0911-1.4504 2491.843-61373.34

YEAR-2017

In the year 2017, IDFC Bank’s Earning Per Share was 3, which is far higher than its
industry’s average EPS: about -20.866. According to these criteria, IDFC Bank’s business
value is much higher than that of the average of its competitors.

IDFC Bank’s has a P/Earnings ratio of 19.77, which is much higher than the industry
average of -6.95. According to the equity multiplier, IDFC Bank's business value is much
higher than the stock valuation of its industry.

Hence, we can say that the stock of IDFC Bank was overvalued in the year 2017 as
compared to the average of the Banking sector.

12
 IDFC Bank Ltd. Vs Peers P/E ratio 2016

53.29
25.02 30.92
20.6
10.64 5.5 Ltd.
Axis Bank Federal Bank H D F C Bank I C I C I Bank Kotak Yes Bank IDFC Babk
Ltd. Ltd. Ltd. Ltd. Mahindra Ltd.
Bank Ltd.

-165.73

IDFC Bank Ltd. Vs Peers P/E ratio 2017

53.2
24.64 30.88
19.77
10.67 5.45 Ltd.
Axis Bank Federal Bank H D F C Bank I C I C I Bank Kotak Yes Bank IDFC Bank
Ltd. Ltd. Ltd. Ltd. Mahindra Ltd.
Bank Ltd.

-166.57

We can clearly see that the P/E ratio of IDFC Bank Ltd. is not much higher than its competitor.
In order to strengthen their current position, the bank should do optimum utilization their
available resources. Also, they should focus on different segment for the purpose of expansion
at a minimum cost.

13
 PRE-MERGER ANALYSIS OF CAPITAL FIRST

Calculation of P/E ratio, P/S ratio, P/BV ratio, EV/EBITDA, EV/Sales, EV/BV of
Equity and Debt:
For the Year 2016

Price to Book Value

Company Name Price to Earning Ratio Price to Sales Ratio Ratio
       
Aavas Financiers Ltd. 67.0029985 89.05591656 42.23303723
Capri Global Capital Ltd. 44.21997755 41.19195388 1.27076278
Motilal Oswal Financial Services
Ltd. 24.34183034 77.03984111 5.700724212
Ujjivan Small Finance Bank Ltd. -30.44444444    
       
Industry Average 26.28009049 69.09590385 16.40150808

Minimum -30.44444444 41.19195388 1.27076278

Average 26.28009049 69.09590385 16.40150808
Maximum 67.0029985 89.05591656 42.23303723

  Earning Per Share Sales Per Share Book Value Per Share
CAPITAL FIRST LTD. 17.22 2.02530216 181.9
Minimum -524.2533333 83.42615316 231.1517497
Average 452.5431582 139.9400833 2983.434319
Maximum 1153.791634 180.3651402 7682.189473

Range in (₹) (524.25)-1153.79 83.426-180.365 231.7682.189

14
 Enterprise
Enterprise Value/BV of
Company Name Value/EBIDTA Enterprise Value/Sales (Equity+Debt)
       
Aavas Financiers Ltd. 139.5662003 0.000110389 0.542333426
Capri Global Capital Ltd. 63.70785613 5.33495E-05 0.245403928
Motilal Oswal Financial Services
Ltd. 96.71472908 8.40474E-05 0.607907597
Ujjivan Small Finance Bank Ltd.      
       
Industry Average 99.99626182 8.25953E-05 0.465214984

Minimum 63.70785613 5.33495E-05 0.245403928

Average 99.99626182 8.25953E-05 0.465214984
Maximum 139.5662003 0.000110389 0.607907597

  EBIDTA Sales BV of Equity and Debt

IDFC BANK LTD. 238.61 1,847.84 7,185.45
Minimum 15201.33155 0.098581404 1763.337658
Average 23860.10803 0.152622898 3342.779005
Maximum 33301.89104 0.203981105 4368.089641

Range in (₹) 15201.331-33301.891 0.09858-0.2039 1763.33-4368.089

YEAR-2016

In the year 2016, Capital First’s Earning Per Share was 17.22, which is far lower than its
industry’s average EPS: about 452.34. According to these criteria, Capital First’s business
value is much lower than that of the average of its competitors.

Capital First’s has a P/Earnings ratio of 25.060, which is slightly lower than the industry
average of 26.28. According to the equity multiplier, Capital First’s business value is lower
than the stock valuation of its industry.

Hence, we can say that the stock of Capital First’s was overvalued in the year 2016 as
compared to the average of the financial sector.

15
Calculation of P/E ratio, P/S ratio, P/BV ratio, EV/EBITDA, EV/Sales, EV/BV of
Equity and Debt:
For the Year 2017

Price to Book Value

Company Name Price to Earning Ratio Price to Sales Ratio Ratio
       
Aavas Financiers Ltd. 67.3898051 57.75477205 23.08154462
Capri Global Capital Ltd. 44.30415264 31.6184856 6.044250498
Motilal Oswal Financial Services
Ltd. 24.12661931 63.81550918 4.59746775
Ujjivan Small Finance Bank Ltd. -30.27777778 20.82996996 2.725
       
Industry Average 26.38569982 43.5046842 9.112065718

Minimum -30.27777778 20.82996996 2.725

Average 26.38569982 43.5046842 9.112065718
Maximum 67.3898051 63.81550918 23.08154462

  Earning Per Share Sales Per Share Book Value Per Share
CAPITAL FIRST LTD. 23.2 2.799006455 229.64
Minimum -702.4444444 58.30322039 625.769
Average 612.1482357 121.7698919 2092.494771
Maximum 1563.443478 178.6200221 5300.445907

Range in (₹) (702.44)-1563.443 58.303-178.620 625.769-5300.445

16
 Enterprise
Enterprise Value/BV of
Company Name Value/EBIDTA Enterprise Value/Sales (Equity+Debt)
       
Aavas Financiers Ltd. 86.99505501 7.15103E-05 0.360404627
Capri Global Capital Ltd. 59.16512105 4.09328E-05 0.24118831
Motilal Oswal Financial Services
Ltd. 71.04458254 6.9672E-05 0.591997517
Ujjivan Small Finance Bank Ltd. 60.89258005 3.3278E-05 0.005194527
       
Industry Average 69.52433466 5.38483E-05 0.299696245

Minimum 59.16512105 3.3278E-05 0.005194527

Average 69.52433466 5.38483E-05 0.299696245
Maximum 86.99505501 7.15103E-05 0.591997517

  EBIDTA Sales BV of Equity and Debt

IDFC BANK LTD. 332.29 2,726.85 8702.01
Minimum 19659.97807 0.090743996 45.20282822
Average 23102.24116 0.146836112 2607.959724
Maximum 28907.58683 0.194997892 5151.568315

Range in (₹) 19659.978-28907.586 0.0907-0.19499 45.202-5151.568

YEAR-2017

In the year 2017, Capital First’s Earning Per Share was 23.2, which is far lower than its
industry’s average EPS: about 612.148. According to these criteria, Capital First’s business
value is much lower than that of the average of its competitors.

Capital First’s has a P/Earnings ratio of 33.73, which is slightly higher than the industry
average of 26.38. According to the equity multiplier, Capital First’s business value is lower
than the stock valuation of its industry.

Hence, we can say that the stock of Capital First’s was overvalued in the year 2017 as
compared to the average of the financial sector.

17
 Capital First Vs Peers P/E ratio 2016

67

44.22

24.34 25.06

Aavas Financiers Capri Global Motilal Oswal Ujjivan Small Capital First Ltd.
Ltd. Capital Ltd. Financial Services Finance Bank Ltd.
Ltd.
-30.44

Capital First Vs Peers P/E ratio 2017

67.39

44.3
33.73
24.13

Aavas Financiers Capri Global Motilal Oswal Ujjivan Small Capital First Ltd.
Ltd. Capital Ltd. Financial Services Finance Bank Ltd.
Ltd.
-30.28

We can clearly see that the P/E ratio of Capital First Ltd. is not much higher than its
competitor. In order to strengthen their current position, company should do optimum utilization
their available resources. Also, they should focus on different segment for the purpose of
expansion at a minimum cost.

18
 POST-MERGER ANALYSIS OF IDFC FIRST
BANK LTD.

Calculation of P/E ratio, P/S ratio, P/BV ratio, EV/EBITDA, EV/Sales, EV/BV of
Equity and Debt:
For the Year 2018
Price to Book Value
Company Name Price to Earning Ratio Price to Sales Ratio Ratio
       
Axis Bank Ltd. 32.57674419 37.81824055 2.113585612
Federal Bank Ltd. 10.93934911 13.52846143 0.944685743
H D F C Bank Ltd. 24.90074442 81.16608293 3.833810888
I C I C I Bank Ltd. 32.63812155 56.45778503 2.853726873
Kotak Mahindra Bank Ltd. 55.12374687 146.514134 5.693783775
Yes Bank Ltd. 5.465116279 13.85863917 0.953346856
       
Industry Average 26.94063707 58.22389052 2.732156625

Minimum 5.465116279 13.52846143 0.944685743

Average 26.94063707 58.22389052 2.732156625
Maximum 55.12374687 146.514134 5.693783775

  Earning Per Share Sales Per Share Book Value Per Share
IDFC FIRST BANK LTD. 2.59 3.001799398 44.87
Minimum 14.15465116 40.60972738 42.38804931
Average 69.77625001 174.7764395 122.5918677
Maximum 142.7705044 439.8060393 255.480078

Range in (₹) 14.154-142.770 40.609-439.806 42.388-255.480

19
 Enterprise Enterprise Value/BV
Company Name Value/EBIDTA Enterprise Value/Sales of (Equity+Debt)
       
Axis Bank Ltd. 5.844686579 5.844686579 0.332511503
Federal Bank Ltd. 1.441038185 1.441038185 0.101355854
H D F C Bank Ltd. 10.48631903 10.48631903 0.871264452
I C I C I Bank Ltd. 4.608732746 4.608732746 0.554099972
Kotak Mahindra Bank Ltd. 11.2535548 11.2535548 1.526460337
Yes Bank Ltd. 6.858240565 6.858240565 0.509830187
       
Industry Average 6.748761984 6.748761984 0.649253717

Minimum 1.441038185 1.441038185 0.101355854

Average 6.748761984 6.748761984 0.649253717
Maximum 11.2535548 11.2535548 1.526460337

  EBIDTA Sales BV of Equity and Debt

IDFC FIRST BANK LTD. 8930 10,218.35 108730.58
Minimum 12868.47099 14725.03254 11020.48079
Average 60266.44452 68961.21202 70593.73326
Maximum 100494.2444 114992.7617 165972.9178

14725.0325-
Range in (₹) 12868.470-100494.244 114992.761 11020.480-165972.917

YEAR-2018

In the year 2018, IDFC First Bank’s Earning Per Share was 2.59, which is far lower than its
industry’s average EPS: about 69.77. According to these criteria, IDFC First Bank’s
business value is much lower than that of the average of its competitors.

IDFC First Bank’s has a P/Earnings ratio of 18.28, which is lower than the industry average
of 26.94. According to the equity multiplier, IDFC First Bank's business value is lower than
the stock valuation of its industry.

Hence, we can say that the stock of IDFC First Bank was undervalued in the year 2018 as
compared to the average of the Banking sector.

20
Calculation of P/E ratio, P/S ratio, P/BV ratio, EV/EBITDA, EV/Sales, EV/BV of
Equity and Debt:
For the Year 2019

Price to Book Value

Company Name Price to Earning Ratio Price to Sales Ratio Ratio
       
Axis Bank Ltd. 32.5255814 31.45682171 2.11026616
Federal Bank Ltd. 11.10946746 11.56004092 0.959376597
H D F C Bank Ltd. 25.49627792 66.4527093 3.925501433
I C I C I Bank Ltd. 33.08287293 52.45218699 2.892613883
Kotak Mahindra Bank Ltd. 54.82926065 122.153321 5.663366016
Yes Bank Ltd. 5.736434109 10.32515583 1.000676133
       
Industry Average 27.12998241 49.06670596 2.75863337

Minimum 5.736434109 10.32515583 0.959376597

Average 27.12998241 49.06670596 2.75863337
Maximum 54.82926065 122.153321 5.663366016

  Earning Per Share Sales Per Share Book Value Per Share
IDFC FIRST BANK LTD. -4.66 2.75 38.06
Minimum -26.73178295 28.39417854 36.51387328
Average -126.425718 134.9334414 104.9935861
Maximum -255.5043546 335.9216327 215.5477106

Range in (₹) (26.731)-(255.504) 28.394-335.921 36.513-215.547

21
 Enterprise
Value/BV of
Company Name Enterprise Value/EBIDTA Enterprise Value/Sales (Equity+Debt)
       
Axis Bank Ltd. 4.882294475 3.88979E-05 0.37186488
Federal Bank Ltd. 1.246998488 1.00153E-05 0.089355058
H D F C Bank Ltd. 8.624454101 7.22284E-05 0.779223068
I C I C I Bank Ltd. 4.276941427 5.8781E-05 0.51289825
Kotak Mahindra Bank Ltd. 9.369588837 0.000116316 1.279169285
Yes Bank Ltd. 5.045045393 4.16452E-05 0.423512825
       
Industry Average 5.574220453 5.6314E-05 0.576003894

Minimum 1.246998488 1.00153E-05 0.089355058

Average 5.574220453 5.6314E-05 0.576003894
Maximum 9.369588837 0.000116316 1.279169285

  EBIDTA Sales BV of Equity and Debt

IDFC FIRST BANK LTD. 11948.17 13,142.66 145118.66
Minimum 14899.34992 0.131628093 12967.08625
Average 66601.7336 0.740116133 83588.91332
Maximum 111949.4402 1.528704764 185631.3326

Range in (₹) 14899.349-111949.440 0.131-1.528 12967.086-185631.332

YEAR-2019

In the year 2019, IDFC First Bank’s Earning Per Share was -4.66, which is far higher than
its industry’s average EPS: about -126.42. According to these criteria, IDFC First Bank’s
business value is much lower than that of the average of its competitors.

IDFC First Bank’s has a P/Earnings ratio of -11.91, which is lower than the industry average
of 27.12. According to the equity multiplier, IDFC First Bank's business value is lower than
the stock valuation of its industry.

Hence, we can say that the stock of IDFC First Bank was undervalued in the year 2019 as
compared to the average of the Banking sector.

22
Calculation of P/E ratio, P/S ratio, P/BV ratio, EV/EBITDA, EV/Sales, EV/BV of
Equity and Debt:
For the Year 2020

Price to Book Value

Company Name Price to Earning Ratio Price to Sales Ratio Ratio
       
Axis Bank Ltd. 32.92325581 27.74551046 2.136067355
Federal Bank Ltd. 11.51627219 10.26324218 0.994506898
H D F C Bank Ltd. 26.1662531 58.96883357 4.028653295
I C I C I Bank Ltd. 34.31491713 47.08851821 3.000338148
Kotak Mahindra Bank Ltd. 56.76065163 111.1609494 5.862861211
Yes Bank Ltd. 5.736434109 9.778014153 1.000676133
       
Industry Average 27.90296399 44.16751133 2.83718384

Minimum 5.736434109 9.778014153 0.994506898

Average 27.90296399 44.16751133 2.83718384
Maximum 56.76065163 111.1609494 5.862861211

  Earning Per Share Sales Per Share Book Value Per Share
IDFC FIRST BANK LTD. -5.94 3.734530601 32.02
Minimum -34.0744186 36.51629307 31.84411088
Average -165.7436061 164.9449226 90.84662655
Maximum -337.1582707 415.1339672 187.728816

Range in (₹) (34.074)-(337.158) 36.516-415.133 31.844-187.728

23
 Enterprise Enterprise Value/BV
Company Name Value/EBIDTA Enterprise Value/Sales of (Equity+Debt)
       
Axis Bank Ltd. 4.259145453 3.42294E-05 0.335351173
Federal Bank Ltd. 1.106278251 8.80891E-06 0.081801244
H D F C Bank Ltd. 7.439082183 6.25041E-05 0.647137516
I C I C I Bank Ltd. 3.871721216 5.18822E-05 0.465985712
Kotak Mahindra Bank Ltd. 8.497573565 0.000106579 1.161009267
Yes Bank Ltd. 4.263453106 3.75731E-05 0.642965793
       
Industry Average 4.906208962 5.02628E-05 0.555708451

Minimum 1.106278251 8.80891E-06 0.081801244

Average 4.906208962 5.02628E-05 0.555708451
Maximum 8.497573565 0.000106579 1.161009267

  EBIDTA Sales BV of Equity and Debt

IDFC FIRST BANK LTD. 1587.31 17,962.73 127286.03
Minimum 1756.00653 0.158232114 10412.15566
Average 7787.674548 0.902857113 70733.92255
Maximum 13488.2835 1.914450659 147780.2604

Range in (₹) 1756.006-13488.2835 0.158-1.9144 10412.155-147780.2604

YEAR-2020

In the year 2020, IDFC First Bank’s Earning Per Share was -5.94, which is far higher than
its industry’s average EPS: about -165.74. According to these criteria, IDFC First Bank’s
business value is much lower than that of the average of its competitors.

IDFC First Bank’s has a P/Earnings ratio of -3.55, which is lower than the industry average
of 27.90. According to the equity multiplier, IDFC First Bank's business value is lower than
the stock valuation of its industry.

Hence, we can say that the stock of IDFC First Bank was undervalued in the year 2020 as
compared to the average of the Banking sector.

24
 Idfc first bank Vs peers (post merger)
2018 2019 2020

56.76
55.12
54.83
34.31
33.08
32.92
32.58

32.64
32.53

26.17
25.5
24.9

18.28
11.52
11.11
10.94

5.74
5.74
5.47
Ax is Ba n k F eder al Bank H D F C Bank I C I C I Bank Kotak Yes Bank Ltd. I D F C F ir s t

-3.55
Ltd. Ltd. Ltd. Ltd. M a h in d r a Bank Ltd.
Bank Ltd.

-11.91
The benefit in the initial two fourth of the consolidation is negative which is likewise reflected in
the negative EPS of the blended substance. Additionally the stock weakening impact can be
apparently seen with the drop in total worth of EPS when contrasted with the pre-consolidation
stage, inferable from the issuance of new offers to the investors of either combining
substances.

25
 SYNERGY BENEFITS OF MERGED ENTITY
AND HOLDING PATTERN

Financial proforma of merged entity without synergy benefits

( INR IDFC Capital First Proforma (IDFC Bank +Capital

mn ) Bank First)
FY1 FY18E FY19E FY17 FY18 FY19 FY17 FY18E FY19E
7 E E
Net 1,46,780 1,57,41 1,69,82 23,038 26,025 30,024 1,68,844 1,82,470
worth 8 5 1 , 98,875
IDFC - -
Infusion 9,300
Net 1,68,844 1,82,47 2,
worth 0 08,175
includin
g
infusion
Loans 4,94,017 5,76,73 7,12,53 1,50,91 1,93,22 2,36,98 6,44,931 7,69,95 9,
8 2 4 1 5 9 49,517
-Loan 16.7 23.5 28.0 22.6 19.4 23.3
growth
(%)
Assets 11,21,59 13,35,41 15,33,71 1,64,11 2,03,31 2,48,67 12,85,71 15,38,73 17 ,
7 6 6 9 9 9 6 5 82,395
-Asset 19.1 14.8 23.9 22.3 19.7
growth 15.8
(%)
PAT 10,19 13,645 15,914 2,38 3,485 4,681 12,58 17,13 20,595
7 9 6 0
EPS 3.0 4.0 4.7 22.3 33.2 44.5 3.6 4.2
(INR)
BV (INR) 43.2 46.3 50.0 229.6 257.0 293.6 38.2 42.
5
RoE (%) 6.9 9.0 9.7 10.4 14.2 16.7 9.8 10.
5
RoA (%) 0.9 1.1 1.1 1.6 1.9 2.1 1.2 1.2

Number 3,40 3,40 3,403 9 99 99 4,777 4,901

of share 3 3 9
(mn)

26
Source: Company, Edelweiss research

Swap ratio at 139:10 leading to dilution of 40% for IDFC Bank

  IDFC Bank Capital
First
Mkt. cap (INR mn) 229,681 82,840
No. of share (mn) 3,403 99
Price (INR) 68 838
Share swap 139 10
Additional Share issued 1,375
(mn)
Combined shares (mn)   4,777
Dilution (%)   40.4

Retail proportion will rise to 3 5 % for combined entity

Q2FY18 IDFC Bank Capital IDFC Bank
First + Capital
First
Customers (mn) 1.9 5.1 7
Employees 4,677 1,924 6,601
Branches 100 228 328
Loans (INR mn) 488,300 229,735 718,035
-Retail 40,880 213,284 254,164
-(%) of Retail 8.4 92.8 35.4
Net worth (INR mn) 150,560 24,203 174,763
Total Assets (INR mn) 1,199,520 199,212 1,398,732

Source: Company, Edelweiss research

Given the retail loaning establishment that Capital First carries to the table alongside center
supervisory team, it is esteemed at INR938/share (12% premium over CMP), suggesting 3.2x
FY19E BV. Notwithstanding, for IDFCB, it involves weakening of 40%. With IDFC's holding in
IDFC BANK getting diminished to 37.6%, IDFC will expect imbuement to take its shareholding
to 40%

27
The new entity will have >35% of retail resources with a set up stage (both substances have
put resources into building cycles, frameworks and foundation), expanded item suite, sufficient
capital and potential to develop on an economical premise. While there could be close to term
difficulties via store increase and PSL necessity, over medium-to-longer-term, the
consolidation will be esteem accretive and synergistic.

28
 KEY CHALLENGES

The combined entity's greatest obstacle will be relative to the current record bank account
(CASA) base, which was 13.3 percent of overall stores as recently as a few months earlier. As
a general bank, increase the CASA base to add to stores, lowering the asset expense.
New administration will have less hand on the inheritance foundation book which has been a
drag on yields and stays under pressure. Mr. Vaidya Nathan should keep tight watch on the
discount book as he fabricates the retail book.
IDFC Bank's profit from resource (ROA) remained at 1% and return on value (ROE) at 7.2
percent in FY17. This is as of now lower than ROA and ROE of 1.8 2% and 15-18 for every
penny individually of driving private banks.
Due to a comparatively poor retail assets and liabilities platform, IDFC Bank is grappling with
execution and development since acquiring the universal bank license.
IDFC Bank's profitability is still under strain due to regulatory expenses and investments in
growing its retail market.

29
 CONCLUSION

Initially, it was estimated that this merger will prove success to both the entities in terms of
assets, customers, operation activity etc. They will expand their number of branches. They
went from 150 branches in 2018 to 242 branches in 2019 and they need this number to arrive
at 600–700 and this is vital since, in such a case that you need a higher CASA, you will require
numerous branches so you can offer great types of assistance to everybody and gain trust of
individuals. However, this will require a ton of time and cash and that is the significant danger
which is implied.
As we are aware, this was a consolidation between Capital First and IDFC Bank. The credit
book from Capital First was spotless yet on account of IDFC Bank, they recognized three
record which they weren't certain about and that is the reason they made a few arrangements
which was 419 crores and that is the reason they needed to report this misfortune in March,
19. These arrangements were made for three records: two monetary administrations and one
foundation account. In any case, it's critical to realize that these organizations are paying right
now. Yet, the administration said that they may confront a few issues and that is the reason
they like to make a few arrangements.
Hence, we can say that the new entity should formalized their strategies in a way so that they
can gain operational and financial synergy by using existing resources.

REFERENCES:
Data source- CMIE & Money Control
http://noteslearning.com/idfc-bank-crisis-case-study/
https://mnacritique.mergersindia.com/idfc-capital-first-merger/
http://www.businessworld.in/article/Capital-First-IDFC-Bank-Made-For-Each-Other/15-02-
2019-167236/
https://www.idfcfirstbank.com/content/dam/idfcfirstbank/pdf/news-media/press-release/IDFC-
Bank-Capital-First-merged-on-Dec-18.pdf

30