The share price of IDFC -- holding company for IDFC First Bank and sponsor for IDFC Asset Management Company (AMC) -- has seen a spike of 22 per cent over the last two days amid market buzz that the holding company could see value unlocking in the two companies in the near-term.
“There has been buzz that IDFC could monetise its stake in IDFC First Bank as the lock-in period will end in few months. Also, the stock has been trading at attractive valuations,” said Deven Choksey, managing director of KR Choksey Investment Managers.
The lock-in period for IDFC to maintain a minimum 40 per cent stake in IDFC First Bank comes to end on September 30, 2020. The five-year lock-in period was part of the guidelines laid down by the Reserve Bank of India (RBI) in 2013 for licensing of new banks in the private sector.
The lock-in period became effective from October 1, 2015, when the bank started its operations.
The possibility of value unlocking could bode well for over 400,000 retail investors, WHO have been holding onto the shares of the company on expectations of gains.
However, the share price movement has disappointed investors over the longer period. In one-year period, the stock price is down 14.85 per cent.
“Retail investors have been building heavy positions on the stock as they tend to show high interest in stocks that are low-priced, which allows them to corner larger chunk of shares for same capital,” said a dealer at a broking house.
On Thursday, the stock price closed at Rs 27.80, or 5.5 per cent higher.
The RBI recently formed an internal working group, which would be studying the current regulations on holdings of financial subsidiaries through non-operative financial holding company, which includes IDFC.
The company’s mutual fund (MF) business -- IDFC AMC AMC has also been seeing a steady growth. The AMC recently entered the Rs 1 trillion asset club (in October, 2019).
For June quarter, the AMC’s average assets under management (AAUM) stood at Rs 1,01,769 crore. It has also been among the top-ten players in the MF industry in terms of assets.
IDFC AMC’s valuation could come to about Rs 4,070 crore even assuming four per cent of the AMC’s AAUM (for June quarter). This is almost equal to the current market cap of IDFC, which stood at around Rs 4,437 crore at the end of Thursday’s trade.
Typically, the MF industry has seen deals at 5 per cent or higher valuations.
While the MF industry has gone through a phase of contraction amid the Covid-19 pandemic and lockdowns, IDFC AMC has been able to maintain a steady growth.
Its debt scheme performance, along with decent equity performance, has helped the AMC.