HDFC and HDFC Bank will merge to form India’s third-largest company
4 April 2022
HDFC, HDFC Bank Shares Rally Up to 10% Following Transformational Merger Announcement HDFC, HDFC Bank Shares Rally Up to 10% Following Transformational Merger Announcement
HDFC and HDFC Bank : As of April 1, the merged company will have a market capitalisation of Rs 12.8 lakh crore. HDFC has stated that it will own 41% of the merged entity.
HDFC Bank announced the merger of mortgage lender HDFC with the HDFC Bank on Monday in an effort to create a financial behemoth. According to a regulatory filing, HDFC Bank’s board of directors has approved the merger of HDFC Investments and HDFC Holdings with HDFC Limited and HDFC Limited into HDFC Bank. This merger will most likely result in the formation of India’s third largest entity in terms of market capitalization.
“From a valuation standpoint, the HDFC twins are still only attractively priced in a highly valued market.” FPI’s strategy of sustained selling in HDFC twins has proven to be a poor decision,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
According to the bank, the share exchange ratio for the amalgamation of HDFC Limited with and into HDFC Bank will be 42 equity shares (credited as fully paid up) of HDFC Bank with a face value of Rs 1 (Rupee One) for every 25 fully paid-up equity shares of HDFC Limited with a face value of Rs 2 (Rupee Two).
“The merger will benefit HDFC and HDFC Bank more because it has a lower-profitable business and can increase its product penetration with HDFC Bank.” However, business-related synergies could have been achieved even without the merger. “The management bet is clear: the increased balance sheet size of the entity will enable it to increase its competitiveness and create shareholder value,” said Abhay Agarwal, founder and fund manager at Piper Serica, a SEBI-registered portfolio management service provider.
“This is the largest and most transformational merger in India’s financial services sector.” With this merger, HDFC Bank gains an unrivaled advantage in the mortgage portfolio, providing it with a quantum leap in distribution to semi-urban and rural areas, as well as a massive opportunity to cross-sell bank products to a very loyal client base. The combined entity will be able to reap significant synergy benefits that will benefit all stakeholders and shareholders. “We are already seeing that in the market reaction to today’s unprecedented announcement,” said Samir Bahl, CEO of Anand Rathi Advisors’ investment banking division.
