HDFC twins merger: HDFC Bank may change pecking order of top companies on D-street

HDFC Bank, which announced its merger with HDFC, may change the pecking order of the top listed companies in the country. Some market watchers believe that the private sector lender may become the most valued firm post the merger.

 

With a sharp rise in HDFC Bank and HDFC share price on Monday, the combined market capitalisation of the financial majors stood at Rs 14,04,282.31 crore, which is more than that of the second-largest firm Tata Consultancy Services (Rs 13,79,389.19 crore). On the other hand, energy-to-telecom behemoth Reliance Industries (Rs 18,01,526.92 crore) is the most valued firm on Dalal Street. At present, HDFC Bank is the third-biggest firm in the Sensex pack in terms of market value, while HDFC holds the 10th spot in the index in terms of m-cap.

 

As part of the merger between HDFC and HDFC Bank, 42 shares of HDFC Bank would be given for every 25 shares of HDFC. Post the amalgamation, HDFC Bank will be 100 per cent owned by public shareholders and existing shareholders of HDFC will own a 41 per cent stake in the bank.

 

While projecting the pecking order post-merger, AK Prabhakar, head of research, IDBI Capital Market said, "Cost of funds for banks are lower than the NBFCs. If you have to grow business, you need to merge for long term sustainability. The merged entity of HDFC Bank and HDFC will get near to SBI in terms of the loan portfolio. There are chances that HDFC Bank may become number 1 in terms of market value post-merger."

 

Kranthi Bathini, equity strategist at WealthMills Securities, seconded Prabhakar. "HDFC Bank can become number 1 or number 2 company post-merger. Index wise, it is a big shift and also has good free float. The move can attract robust buying interest from large FPIs across the globe," Bathini said.

 

For the quarter ended December 31, 2021, foreign institutional investors held 37.47 per cent stake in HDFC Bank. On the other hand, they held 72.14 per cent stake in HDFC, data available with the BSE showed.

 

Commenting on FII (foreign institutional investors) flows after the merger, Shivaji Thapliyal, lead analyst-institutional equities at YES Securities said, "Since the shareholding of HDFC Limited is regarded as an FII investment, the extinguishing would lead to opening up of around 7-8 per cent headroom for FII investors into HDFC Bank."

 

As per a media release by HDFC Group, the merger will benefit the shareholders of both HDFC and HDFC Bank as funds at lower cost will be made available for the mortgage business. The bank will have access to the time-tested mortgage origination and loan servicing processes of HDFC.

 

"The mortgage business has immense potential and hence the merger will help the group enhance its market share consequent to further leveraging on the distribution network of HDFC Bank. The merger will mitigate single product risk whilst at the same time enhance the diversity of assets for the combined entity," the release said.

 

Shares of HDFC Bank settled 9.97 per cent higher at Rs 1,656.45 on Monday, while those of HDFC closed 9.30 per cent higher at Rs 2,678.90. The benchmark BSE Sensex ended at 60,611.74, up 2.25 per cent against the previous close.

Also Read: Coke Studio Bangla releases its second song, Prarthona

Also Read: This multibagger stock hits upper circuit; zooms over 550% in one year