An IDFC Bank branch at Bandra Kurla Complex, Mumbai, India. (Source: IDFC Bank’s official twitter handle)

Here’s Why Brokerages See IDFC Bank-Capital First Merger As A Positive Step

The merger of IDFC Bank Ltd. with Capital First Ltd. is a step in the right direction as it helps both entities achieve their stated intentions.

That’s the word coming from brokerages on the proposed merger, which will create a lender with a portfolio diversified across large corporate lending, small and medium enterprise loans and retail credit.

The merger is positive for IDFC Bank as it offers it a chance to scale-up its retail lending franchise, according to CLSA. The proposed merger favours Capital First on valuations, according to Jefferies' analysts. But the merger isn’t without its downsides. The increased provisioning costs emanating from Capital First’s small and medium enterprises book will offset benefits from lower borrowing costs, Antique Stock Broking warned.

Shares of Capital First hit a 10-year high in early trade, rising 7.7 percent to Rs 902, while those of IDFC Bank fell 3.5 percent.

Boards of both the companies on Saturday approved a merger between the two entities, in which shareholders of Capital First will get 139 shares of IDFC Bank for every 10 held.

The combined bank’s loan book will be about 30 percent larger, and its net worth will be 16 percent higher, on the basis previous financial year, CLSA said in a report.

Here’s what brokerages had to say about the merger between Capital First and IDFC Bank:


  • IDFC Bank: Maintained ‘Buy’ with a target price of Rs 70, implying a potential upside of 4.4 percent from Friday’s close.
  • Merger positive for IDFC Bank as it offers a chance to scale-up its retail lending franchise, with Capital First transitioning into a bank.
  • Capital First is more profitable, and while regulatory assets will drag down return on assets, sustainable leverage can be higher.
  • The smooth transition of businesses, as well as people and the ramp-up of the current account savings account franchise, could drive a re-rating.
  • Maintain earnings estimates for IDFC Bank.


  • Capital First: Maintained ‘Buy’, raised target price to Rs 1,033 from Rs 927.
  • IDFC Bank: Maintained ‘Buy’, raised target price to Rs 74 from Rs 67, implying a potential upside of 10.4 percent from Friday’s close.
  • Merger is a step in right direction to achieve stated intentions of both entities.
  • It will be synergistic, value accretive and provide an opportunity to build a robust banking franchise.
  • Immediate term benefits flow more to Capital First.
  • Value combined entity at Rs 36,400 crore, i.e., 1.75 times next financial year’s book.
  • All regulatory approvals (RBI, CCI, SEBI, etc) to take almost 9-12 months.
  • Ramp up of liability franchise will be a key monitorable.

Antique Stock Broking

  • Lower borrowing costs is one of the potential benefit of the merger.
  • Increased provisioning costs to offset benefits from lower borrowing costs.
  • Capital First’s SME book to witness higher provisions in the “banking avatar”.
  • Combined entity to trade between 2-2.2 times during integration phase, translating to Rs 70-75.
  • Further upside contingent upon successful integration and re-alignment of bank strategy.
  • Expect 10-12 percent price upside to Capital First; no significant upside to IDFC Bank.


  • Proposed merger favours Capital First on valuations.
  • Merger of greater strategic significance for IDFC Bank.
  • Merged entity would have a more diversified asset book.
  • Capital First may gain on the funding side, but not in the near term.
  • Retail franchise ramp-up remains the key.