ICICI – BoR Deal Analysis May 20, 2010

Event
ICICI Bank to acquire Bank of Rajasthan Ltd. (BoR)

The Deal
ICICI Bank will offer 25 shares for every 118 shares of Bank of Rajasthan.

Items ICICI Bank BoR

Swap Ratio 25 118
Share Outstanding (Cr) 111 16
Pre Announcement Price (Rs) 890 99
Pre Announcement MCap ( Rs Cr) 99,221 1,597
Deal Value (Rs Cr) 3,042

Benefits to ICICI Bank

ICICI Bank is expected to benefit in terms of an addition of 463 braches of BoR to its
existing branch network of 2000 branches, which will in turn enhance its earning
potentials, return on assets (RoA) and return on equity (RoE).

Analysis
Expensive Deal…
At a swap ratio of 25:118, the deal value comes at Rs 3,042 cr, translating into a P/BV
ratio of 5.4x and 2.9x to the adjusted book value of Rs 559 cr and un-adjusted book value
of Rs 1,080 cr respectively as on 31st Dec. 2009.

Valuations paid by ICICI Bank looks very expensive, as public sector banks and private
sector banks are currently traded at an average P/BV ratio of 1.2x and 2.2x respectively.

Private Sector Banks BV CMP P/BV

Kotak Mahindra Bank Ltd 128.8 744.2 5.8
HDFC Bank Ltd 469.4 1868.8 4.0
IndusInd Bank Ltd 52.7 180.6 3.4
Axis Bank Ltd 395.6 1205.1 3.0
Yes Bank Ltd 90.8 265.4 2.9
Dhanalakshmi Bank Ltd 66.0 146.5 2.2
Karur Vysya Bank Ltd 248.1 507.2 2.0
City Union Bank Ltd 17.7 33.6 1.9
ICICI Bank Ltd 462.9 825.0 1.8
ING Vysya Bank Ltd 185.2 307.5 1.7
Development Credit Bank Ltd 27.1 44.1 1.6
United Western Bank Ltd (Merged) 18.0 25.9 1.4
Jammu and Kashmir Bank Ltd 621.0 771.9 1.2
South Indian Bank Ltd 129.8 152.3 1.2
Federal Bank Ltd 273.9 312.9 1.1
Karnataka Bank Ltd 136.8 148.7 1.1
Lakshmi Vilas Bank Ltd 73.4 79.6 1.1
Average 2.2

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 Public Sector Banks BV CMP P/BV
State Bank of India 1038.8 2214.9 2.1
Punjab National Bank 514.8 1005.4 2.0
Bank of Baroda 375.7 674.7 1.8
Union Bank of India 174.4 294.9 1.7
Andhra Bank 90.9 128.4 1.4
Canara Bank 305.8 423.1 1.4
Central Bank of India 108.2 148.5 1.4
Indian Bank 154.7 209.3 1.4
Bank of India 243.7 323.3 1.3
Corporation Bank 402.6 505.5 1.3
Allahabad Bank 131.7 153.8 1.2
Oriental Bank of Commerce 292.2 324.9 1.1
State Bank of Mysore 575.1 622.1 1.1
Dena Bank 83.4 89.9 1.1
UCO Bank 65.7 70.4 1.1
State Bank of Travancore 568.1 591.2 1.0
Vijaya Bank 53.5 55.5 1.0
IDBI Bank Ltd 113.1 111.6 1.0
Bank of Maharashtra 55.8 54.4 1.0
State Bank of Bikaner and Jaipur 483.5 442.5 0.9
Syndicate Bank 99.9 87.8 0.9
United Bank of India 91.7 78.7 0.9
Indian Overseas Bank 116.5 92.8 0.8
Average 1.2

Equity Dilution
Our calculation reveals that at the 25:118 swap ratio, to fund the deal, ICICI Bank will
issue about 3.42 cr new shares, which amounts to a 3.1% equity dilution.

Leading to fall in value of ICICI Bank…

Right after the announcement of the deal, share of ICICI Bank shown a heavy selling
pressure and finally settled at Rs 825, down by 7.3%. It is interesting to note that ICICI
Bank has lost a market cap of around 7,250 cr, which is 2.4 times the deal value. On the
other hand, share of Bank of Rajasthan capped at 20% upper circuit, translating into a
gain in market cap of Rs 323 cr.

Items ICICI Bank BoR

Post Announcement Price (Rs) 825 119
Post Announcement Mcap (Rs Cr) 91,975 1,920
MCap Lost/Gain on Announcement (Rs Cr) (7,246) 323
MCap Lost/Gain to Deal Value (2.4) 0.1

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 Our View
The motive of merger clearly is related to the branch network. At 463 branches, ICICI
Bank adds 22% more branches, which otherwise could have taken up to two years to
ramp up organically. Owing to higher valuation paid for the deal, ICICI Bank is looking
unattractive at current valuations, however once the benefits from additional branches
come into play, will led to improvement in profitability.

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