The Boards of IDFC Bank (IDFCB) and Capital First (CAFL) have approved a merger of the two entities at a 13.9:1 swap ratio. We believe this merger would have benefits for shareholders of both companies, though near term regulatory & integration challenges persist. The share swap ratio makes it attractive (~12.5% premium to CMP) for CAFL shareholders. Benefits to IDFCB shareholders will accrue more over a medium to long term perspective. On our proforma merged numbers, we expect ~20bp/200bp higher ROA/ROE for IDFCB by FY21. Without factoring in cost related synergy benefits, balance sheet realignment would drive 4-5% higher profitability for combined entity. While the merger would result in dilution of BVPS for IDFCB in the short term (INR41/44 in FY19/20E v/s INR48/51 earlier), we believe its growth and RoE profile would improve significantly post consolidation. We have a BUY rating on Capital First and revise target price to INR960 (earlier INR925) ??? 2.7x FY20 BV. We expect share price of CAFL to largely track the price of IDFCB in the ensuing quarters. We have a neutral rating on IDFCB.