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Shares of HDFC Bank and HDFC jumped on Monday as analysts see all-round benefit for the single unit.
The HDFC twins merger decision on April 4, 2022, has reached the final stage. HDFC Bank will issue and allot to eligible shareholders 42 shares of the face value of ₹1 each, credited as fully paid-up, for every 25 equity shares of the face value of ₹2 each fully paid-up held by such shareholder in HDFC Ltd as on July 13 - the record date.
While shares of HDFC jumped nearly 1.8 per cent at ₹2,871.35 on the NSE, HDFC Bank climbed 1.1 per cent at ₹1,719.80 on the NSE. The combined market capitalisation of HDFC and HDFC Bank stood at ₹14,93,119.33 crore on the BSE. A Bloomberg report last week said that the the merger will push HDFC Bank as the fourth-biggest lender in market capitalisation terms.
‘Very Attractive’
According to Morgan Stanley, HDFC Bank is “a compounder at attractive valuations.”
New Constructs, an independent US-based research technology firm, has rated HDFC Bank as “attractive.”
“HDFC Bank Ltd is one of 62 companies that earn an Attractive credit rating out of the 125 companies in the financials large-cap credit rating group,” New Constructs said, as it rates adjusted debt to capital and adjusted EBIDTA to Debt ratios as ‘very attractive’ and adjusted free cash flow to debt and adjusted cash to debt ratios as ‘attractive’.
However, the research firm said the adjusted interest coverage as “neutral”.
Target price ₹2,110
Morgan Stanley, which resumed the rating with Overweight on HDFC Bank said, “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.”
Strong trailing investments and cyclical tailwinds (benign asset quality and improving real deposit rates) will help it navigate merger challenges better and return to 17-18 per cent EPS growth after one year, the global investment advisory said while setting a price target of ₹2,110.
Axis Capital, which came out with a Buy call and a target price of ₹2,150, said the merger will create a behemoth (FY24 loans at ₹25-lakh crore, 15.7 per cent market share) that can deliver a strong growth (of about 17 per cent loan CAGR) and profitability (about 2 per cent RoA).
NIM is likely to decline immediately after the merger before it starts improving over time.
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