HDFC Bank’s share price gained 1.3% to Rs 1,724.25, while HDFC’s stock price jumped 2.5% to Rs 2,897.6 on the first day of trading following the merger of the two lenders. Housing Development Finance Corporation and HDFC Bank’s merger came into effect from July 1, after receiving approval from shareholders and regulators.
“The window for trading in the securities of the Corporation would be closed with effect from Saturday, July 1, 2023, and shall continue to remain closed up to Record Date i.e. up to Thursday, July 13, 2023 (for determining the shareholders of the Corporation who shall be issued and allotted the shares of HDFC Bank), for all the employees, designated employees, and directors of the Corporation including their immediate relatives, in terms of the Sebi (Prohibition of Insider Trading) Regulations, 2015,” said HDFC in an exchange filing.
HDFC Bank’s merger with HDFC would give it access to a large retail customer pool (mortgages) which we believe has become the key franchise product to strengthen customer engagement for retail banks in India. We forecast sector-leading earnings growth of 18% in FY23-26E and superior return ratios with a high degree of earnings visibility,” said Goldman Sachs in a recent report ahead of the merger.
“HDFC Bank has been underperforming the Nifty for the last 3 years in spite of its decent growth. This underperformance is likely to change post merger. The bank which has an enviable track record and excellent execution capabilities will gain from the synergy unleashed by the merger. Presently HDFC Bank is trading at 13.5 times earnings which is a discount to the 5-year average PE of 20. From the Price to Book perspective also the stock is trading at 2.2 times vs the 5-year average PB of 3.5,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services prior to the merger. He added, “Institutional selling to comply with the 10% holding ceiling has been weighing on the stock. This will be over once the merger is affected. The prospects of the merged entity look very bright and this will attract more institutional investment from sector specific funds and ETFs which are not bound by the 10% ceiling.”
“HDFC Bank trades at 16x one-year forward EPS, ~20% below the 15-year mean. Strong trailing investments and cyclicaltailwinds (benign asset quality and improving real deposit rates) will help it navigate merger challenges better and return to 17-18% EPS growth after Year 1. Resume at overweight,” said Morgan Stanley. The brokerage added, “The merger is synergistic. HDFC Bank gets access to secured and long tenor retail mortgage product as well as a large customer base. Its product suite – plus direct access to insurance and other subs – and geographical reach are superior to those of most private banks.”