Shares of Housing Development Finance Corporation (HDFC) Ltd and India's largest private lender HDFC Bank are in focus with the management making it clear that they want the merger to be effective Saturday, July 1, 2023. The boards of the housing finance major and HDFC Bank will meet tomorrow (June 30) post-market hours to provide clearance and approval for the mega merger, HDFC Chairman Deepak Parekh said, adding that the deal received all the regulatory approvals.
Shares of HDFC will get delisted from stock exchanges on July 13 and will start trading under
HDFC Bank ticker, said HDFC Vice-Chairman and CEO Keki Mistry. HDFC shareholders will get their HDFC Bank shares in one to three days, according to the housing finance company's management.
"On July 13, HDFC Ltd stock will go off the
bourses and shareholders will get their shares converted to HDFC Bank," Mistry said.
Investors have been eagerly awaiting the completion of the mega merger. HDFC Bank will be the surviving entity and will be renamed as HDFC Bank Limited.
"HDFC Bank has given a decent pullback from the support taken near the significant 200 period moving average (MA) level of 1585 and is expected to retest the near-term target and resistance zone of 1700-1720 levels from where it needs a decisive breach above to indicate a breakout," said Vaishali Parekh, Vice President - Technical Research at Prabhudas Lilladher.
In the next 2 sessions, the Prabhudas Lilladher analyst expects the price to touch the 1720 zone with indicator looking strong and promising and can wait for a breakout.
Once the merger is completed and HDFC shareholders receive HDFC Bank shares into their demat accounts, the shareholders of housing finance major will get 42 shares of HDFC Bank for every 25 shares of HDFC Ltd that they hold.
HDFC Bank will be 100 percent owned by public shareholders and the existing shareholders of HDFC Ltd will own 41 percent of the lender.
The newly issued HDFC Bank shares are expected to be listed on bourses by July 17, 2023.
Will the shares of HDFC-HDFC Bank benefit from the merger?
Shares of the merger entity will likely benefit from the merger in the long term, as both HDFC Bank and HDFC Ltd will have a larger balance sheet, customer base, product portfolio and distribution network.
Analysts covering India's largest lender are turning bullish on the merged entity as HDFC Bank has been underperforming the Nifty for the last three years in spite of its decent growth. This underperformance is likely to change post merger, said Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"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 versus the 5-year average PB of 3.5," Vijayakumar said.
Further, he noted, "Institutional selling to comply with the 10 percent 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 percent ceiling.
"HDFC Bank, even post merger, is a better play and offers decent upside. HDFC Bank's stock trades around 2.5-2.6 times its forward price-to-book and doesn't capture the market share gains as well as its growth potential," said Pankaj Pandey, head of research at ICICI Securities.
