Shares of Equitas Small Finance and Ujjivan Small Finance Bank (SFB) were in focus on Monday after the Reserve Bank of India (RBI) allowed SFBs and respective holding companies to apply for the amalgamation scheme ahead of the five year lock-in period.
After hitting an intraday high of Rs 76.75 apiece, shares of Equitas SFB closed at Rs 69.85, up 7.3%. Similarly shares of Ujjivan SFB closed 1.5% higher at Rs 30.95 apiece, after hitting an intraday high of 33.80. Meanwhile, shares of the respective holding companies of the SFBs – Equitas Holdings and Ujjivan Financial Services surged 20% each to settle at Rs 138.40 and Rs 244.90 apiece respectively.
Both Equitas Holdings and Ujjivan Financial Services are going to complete five years of business operations. Equitas and Ujjivan hold company currently owns around 82-83% stake in the underlying SFB respectively. “Though the SFBs are required to dilute promoter shareholding to <40% within five years, this scheme of amalgamation will give an exit route to the promoters and collapse the holding company structure,” Motilal Oswal said in a note.
Currently, holding companies of Equitas & Ujjivan Bank are trading at a 35%/43% discount to their fair value. For Equitas Holdings, the trading discount since listing has been in the range of ~24%-54% while for Ujjivan Financial Services, the holding discount has been in the range of 33%-57%, Motilal Oswal said.
“Thus, the amalgamation scheme would help unlock significant value for the shareholders of the respective holding companies as the holding company discount narrows. However, the fair value for the investors would depend on the swap ratio which would be key to monitor,” the brokerage added.
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