HDFC Ltd., India’s largest housing finance company and parent entity of HDFC Group including HDFC Bank, has announced its merger into HDFC Bank. This implies shareholders of HDFC Ltd. will get issued new shares of HDFC Bank (42 for 25) and in return all assets and liabilities of former will get merged into HDFC Bank, which includes housing loan book of Rs 5.26 lac crore and stakes in subsidiaries of AMC, Insurance, Bandhan Bank etc.

Post merger, HDFC Bank will be 100% owned by public shareholders and existing shareholders of HDFC Limited will own 41% of HDFC Bank. The 21% of HDFC Ltd.’s holding in HDFC Bank would be cancelled, paving way for 7% higher FPI limit in HDFC Bank. This is technically enabling billions of dollars of incremental flows from foreign investors whenever the outflows that took place in Jan-Mar reverses. The merged entity would have largest weightage in Nifty and second largest market capitalisation in India. Some brokerages expect potential inclusion in MSCI which could imply large passive flows.

The combined advances (loan book) of the two entities will be Rs 17.86 lac crore with a book value of Rs 446 versus 414 of standalone HDFC Bank. The deal is EPS accretive (3%) from first year and shall be positive for us as HDFC Bank shareholders. In line with our bullish view on housing cycle the timing of merger of parent’s Home Loan book into HDFC Bank seems positive.

Prima facie, multiple synergies exist and these low hanging fruits like cross sell and cost rationalisation can be leveraged over time. For instance, 70% of HDFC Ltd’s customers (housing loan) do not bank with HDFC Bank, implying the cross sell opportunity emanating from this merger is bountiful.

Mr. Sashidhar Jagdishan, the current MD & CEO of HDFC Bank would continue to lead the merged entity.

The deal will involve series of approvals from RBI, CCI, SEBI, Stock Exchanges to creditors, shareholders and NCLT stretching the completion timeline to anywhere between 18-24 months.

Business Update FY22
HDFC Bank has also announced business update for Q4FY22 - the loan book has grown by 20.9% over FY21, and 8.6% sequentially over Q3FY22. There is an all-round growth from retail to corporate. The deposits have grown by 17% taking CASA to life-time high. 563 branches (10% growth) were added during the quarter, taking total network to 6,342.

HDFC Bank has reported such a stellar quarter after a gap of 6-7 quarters marred by COVID and Regulatory constraints in growing the business. Along with merger, such good result hopefully sets the tone for times to come and catch up on the underperformance.

Link to Merger Presentation:
https://www.bseindia.com/xml-data/corpfiling/AttachLive/27bf8aa3-9098-4724-9192-7f384e76f3c2.pdf