HDFC share price surges 15%, HDFC Bank 13%, on merger news; profitability to rise, say analysts

HDFC Bank share price rose 13 per cent on announcement of a transformational merger with HDFC Ltd. The share exchange ratio for the amalgamation of HDFC with HDFC Bank shall be 42 shares (credited as fully paid up) of HDFC Bank for every 25 fully paid up equity shares of HDFC, it said. “This merger is the biggest surprise move to markets and is a win-win call for all stakeholders. This merger will create biggest financial services conglomerate to compete globally,” said Prasanth Tapse, Vice president (Research) Mehta Equities. HDFC Bank was quoting at Rs 1,713.70, up Rs 13.77 per cent, and HDFC was quoting at Rs 2,818.55, up 15 per cent on the BSE.

“The combined entity will leverage the power of distribution in urban, semi-urban and rural geographies and cross-sell with a full suite of financial products to a large and growing customer base. We remain positive on both the stocks and other group entities as post merger there would be some structural changes in the cross holding of other group companies. Shareholders of HDFC, as on record date, will receive 42 shares of HDFC Bank (FV Re 1/- each) for 25 shares of HDFC Limited (FV Rs. 2/- each). Post merger, HDFC Bank will be 100% owned by public shareholders and existing shareholders of HDFC Limited will own 41% of HDFC Bank with combined balance sheet of Rs 17.87 trillion and Rs 3.3 trillion networth enabling larger underwriting at scale,” Tapse added.

Buy HDFC stock at 1480-1500 levels

Pavitraa Shetty, Co-founder & Trainer, Tips2Trades said, “Despite strong fundamentals & consistent financial performances since the pandemic, HDFC group stocks haven’t gone up much making them all the more attractive. This merger should bring about positive synergies, further consolidate leadership position in different segments including housing loans & credit cards, a strong re-rating & focus on internet banking augurs well for HDFC stock to begin its uptrend sooner than later. Technically, a close today above 1600 could lead to 1720 in the coming days. Investors are better off buying at levels closer to 1480-1500 for better returns.”

HDFC and HDFC Bank merger will be beneficial for both companies

“HDFC and HDFC Bank merger will be beneficial for both the companies. With this, HDFC will merge into HDFC Bank and the shareholders of HDFC Bank will become 100% shareholders of HDFC. The two firms intend to combine their capabilities with the merger, combining HDFC’s domain competence in housing finance with HDFC Bank’s better scale and distribution. This will improve the amalgamated entity’s ability to cross-sell banking and housing finance products,” said Animesh Malviya, Banking Analyst, CapitalVia Global Research.

“We have seen a positive impact on the stock prices and we believe that it will help both companies to increase their profitability as they would be able to use each other’s strength to their advantage. Shareholders will also have an advantage as the share prices will increase and the companies will be more profitable. Existing shareholders of HDFC will get shares in HDFC Bank – every 25 shares held in HDFC will fetch 42 shares in HDFC Bank,” he added.

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