Optimism of converting to a bank

IndiaBulls Housing it maybe recalled has applied to the Reserve Bank of India for a proposed merger with Lakshmi Vilas Bank. This will enable an amalgamation, which will give a bank entry to the company.

Lakshmi Vilas Bank in a notice to the exchanges has said that it has completed preferential allotment of l .68 crore equity shares, aggregating to Rs.188.16 crores, to M/s lndiabulls Housing Finance Limited (IHFL).

According to the Bank this has led to a surge in its Tier-I capital and Capital Adequacy ratio has been strengthened by 110 basis points.

Earlier in July, IndiaBulls Housing received an approval from CCI for the proposed merger with Lakshmi Vilas Bank.

Some positive developments

The company is looking for an approval from the RBI, which is crucial. It is already taking all possible step to ensure there are no adverse observations from RBI. Recently, it sold some stake in its non core area of real estate to the Embassy Group in a move aimed at ensuring no adverse observations.

There are reports that the promoter has promised the RBI not to have a control over the merged entity and also bring down the promoter holding in the merged entity to below 10 per cent.

IndiaBulls Housing a good play on dividends

Purely on the basis of dividends itself, the share is a good bet. Last year the company declared a dividend of Rs 40 per share and based on the current market price of Rs 480, the share yields a dividend 8.10 per cent, which is better than bank deposits. Even if it reduces the dividends, the yield is around 7 per cent, which is not bad at all. Even if the merger is not approved by the RBI, the standalone entity of IndiaBulls Housing offers good dividend yield and has significant liquidity and a AAA rating.

Conclusion

All in all, one benefit of the merged entity, if the RBI approves would be access to low cost funds, through fixed deposits and current and savings account. However, in case of approval it is going to be a hard long affair of compliance at various levels. All in all, the stock in the next few days is likely to be volatile. Those who have an appetite for risk, may trade in the stock.

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