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Higher book value favours Bank of Madura in ICICI Bank merger

NetScribes/Janaki Krishnan

The ICICI Bank-Bank of Madura (BoM) swap ratio, though in favour of BoM, has to be viewed in the light that the book value of the latter's shares is about 3.8 times that of the acquiring bank.

The book value per share of ICICI Bank is Rs 61.90 while that of BoM is Rs 232.80 and this was a major factor in determining the exchange ratio. The operating profit margin of BoM is also higher at 33.3 per cent, than that of ICICI Bank, whose margin works out to 31.8 per cent. The net profit margin of ICICI Bank is 16.8 per cent and that of BoM is 13 per cent. The swap ratio has been fixed at two ICICI Bank shares for every one share of BoM.

An analyst with KR Choksey (KRC) said that while the current merger did not promise to develop into a trend - of new private sector banks merging with old private sector banks - it definitely set the ball rolling for creating synergistic mergers in the banking sector.

According to an analyst: "There are various banks which are potential targets for those wishing to expand their network to other markets. For example, there is Federal Bank, Corporation Bank and Vysya Bank." BoM has a network which ICICI Bank wants while the latter has a franchisee network which the older bank would want, he pointed out, adding that it cut both ways.

ICICI Bank will gain by expanding its reach in terms of branch network as well as getting a significant foothold in the southern region. For BoM, the most significant benefit would be the brand equity it would acquire by becoming a part of the ICICI group, with the most overt advantage being technology infusion. BoM has a branch network of 263 while ICICI Bank has 106 branches.

The south-based bank is relatively small (asset size of Rs 39 billion). According to the analyst at KRC, "Small banks, which are standalone entities, require a comprehensive growth strategy and they can acquire this only through an alliance or an outright merger."

The non-performing assets of BoM are higher than those of ICICI Bank, with their NPAs to net advances ratios standing at 4.8 per cent and 1.5 per cent respectively.

On Monday, the BoM scrip hit the upper circuit on BSE, closing at Rs 142.10 compared to the previous close of Rs 131.60. ICICI Bank opened at Rs 169.85 and touched a high of Rs 183 in intra-day trading before closing at Rs 165.30 for the day.

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