Lakshmi Vilas opens in upper circuit on valuation premium

The proposed swap ratio for the Lakshmi Vilas Bank and IndiaBulls Housing (IBH) merger is at a premium to the bank's current share price. The stock hit its upper circuit limit of 5 per cent at Rs. 97.35 per share in Monday's opening session.

Following the approval from their boards, Lakshmi Vilas Bank plans to amalgamate into Indiabulls Housing Finance subject to RBI and other regulatory approvals. The agreed-upon swap ratio is 0.14:1, which is 14 shares of (IBH) for every 100 shares of Lakshmi Vilas. The two entities announced the merger on Friday, April 5, 2019, after market hours.

Lakshmi Vilas Bank is one of the oldest banks in India with 4,881 employees. The bank has a major presence in Tamil Nadu and 19 states pan-India. On the other hand, Indiabulls Housing Finance is a mortgage lender headquartered in New Delhi, India. IBH is India's second largest housing finance company with a wide presence in the north and western India.

Lakshmi Vilas’s presence in south India is a primary merger rationale for IBH. Other benefits include access to low-cost funding from public deposits of the bank and expansion of distribution franchise geographical as well as product-wise with cross-sell opportunities.

On Monday, the stock of Lakshmi Vilas Bank opened at Rs. 97.35 per share, up by Rs. 4.60 or 4.96 per cent, its upper circuit limit on BSE. Meanwhile, the stock of Indiabulls Housing Finance was up at Rs. 904.90 per share or Rs. 1.75 or 0.19 per cent.