IDFC stocks collapse 50% over demerger news

After IDFC demerged its financing business into IDFC Bank today, the shares of the Chennai-headquartered finance company traded nearly 50% down on Thursday at Rs 70.

With more than 20 branches, IDFC Bank will start functioning as a full-fledged bank from Thursday. The provider of financial and advisory services further stated that Rajiv Lall will be taking over as the MD & CEO of IDFC Bank with effect from October 1.

Parent firm IDFC FHCL will retain almost 53% stake in IDFC Bank, while the company’s shareholders will be holding 47% of the remaining stake. The shares of IDFC Bank will be listed in the first fortnight of November.

Brokerage Edelweiss Securities estimated that IDFC FHL may fetch Rs 94 (holding company discount of 40%) and IDFC Bank may fetch Rs 70. “While triggers for the holding company will be limited, the next value creator will be re-rating of the banking entity," Edelweiss Securities mentioned in a note.

It further specified, "Given the strong management acumen, focus on technology and service delivery, the bank starting with a clean state with most of the hit already taken and trigger in terms of stock coming out of FII restriction (foreign holding of 22.28% in bank), we expect IDFC Bank to command a multiple of 1.85 times translating to Rs 70 per share.”

“We subscribe to the model that IDFC has adopted to metamorphosise into a universal bank and de-merger will lead to value creation as it embarks on its journey of creating a strong banking franchise," the brokerage mentioned.

Recently, IDFC also received the bank licence to access stable retail deposits and low-cost current and savings accounts and reduce reliance on wholesale funding.
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