- Date: 30th Oct 2017
- Bharat Financial Inclusion is dropped from the JainMatrix Investments – Mid and Small Cap (Multi Bagger) Model Portfolio
- The merger of micro finance lender Bharat Financial Inclusion (BFIL) and IndusInd Bank (IIB) was announced on 14th Oct. BFIL will merge into IIB in a swap where BFIL shareholders will receive 639 shares of IIB for every 1,000 shares of BFIL. On the day of announcement, the premium on BFIL was 12.6%. It has now narrowed to 7.4%.
- The merger offers mutual synergies on network, customers and products. IIB will grow its rural network and increase priority lending. There are synergies with cost reduction and BFIL will lower the cost of wholesale deposits. The merger is mutually beneficial.
- The merger is expected to complete over the next 6-9 months. The timelines are as follows:
Source: BFIL News Release
Record of Performance
- BFIL had entered the MSC at Rs. 427 in Feb 2015. We had reported on BFIL (formerly SKS Microfinance) in Sept 2015, see link SKS Microfinance – A Magical Mix
- We exited BFIL on 21st Oct at Rs. 995 (entry at Rs. 427 in Feb 2015). It gained 133% absolute and 37.8% CAGR in 2.5 years.
- The MSC Model Portfolio has a good 4.5 year Track Record
Opinion and Reasons
- BFIL would cease to exist post the merger. Hence if investors continue to hold BFIL they will become IIB shareholders.
- BFIL is a good mid-cap stock with appreciation potential as an independent firm.
- IIB is 1) a large cap Bank of Rs 97,000 crores mkt cap. 2) It has been a high performance stock in the past 3) However we at JainMatrix do not track IIB 4) It will not meet the objectives of MSC Model Portfolio. So BFIL is dropped from the JainMatrix MSC Model Portfolio.
- Subscribers may exit BFIL and enter the other BUY rated stocks of the MSC Model Portfolio.
- They may also, at their own discretion, choose to become IIB shareholders. But JainMatrix is not covering this stock.
This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Punit Jain has been a long term investor in BFIL since Nov 2014. Basis this note he intends to exit his positions in BFIL. Other than this, JM has no known financial interests in BFIL or any related group. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at firstname.lastname@example.org.