HDFC Bank shares in focus as private lender to sell 100% stake in education arm

Shares of HDFC Bank Ltd are in focus on Monday morning after the largest private lender decided to undertake the sale of its 100 per cent stake in HDFC Education, using the Swiss challenge method, after due deliberation and in the interests of maintaining transparency in the proposed divestment. HDFC Bank said it has  entered into a binding term sheet with an interested party and the offer contained in such term sheet will serve as the anchor/base bid to seek counter offers from other parties interested in participating in the aforesaid Swiss challenge process.

HDFC Bank shares are down 15 per cent in 2024 so far while they have fallen 10 per cent for the one-year period. The bank would be announcing it March quarter results on April 20.

HDFC Bank would finalise the purchaser on the basis of the completion of the Swiss challenge process, subsequent to which such purchaser and HDFC Bank will enter into definitive documentation for the purposes of the proposed transaction, the bank said in a BSE filing.

"In view of the nature of the process that is required to be followed for the purposes of the Proposed Transaction, the details as required to be disclosed as on date in terms of Regulation 30 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, read with the circulars issued thereunder, are hereby disclosed. The details of the definitive documentation for the purposes of the Proposed Transaction which are required to be disclosed in light of the aforesaid regulations shall be submitted upon execution of such definitive documentation," HDFC Bank said.

The Reserve Bank of India (RBI) has permitted the private bank to keep holding the stake of erstwhile Housing Development Finance Corporation (HDFC) in HDFC Education, which is engaged in providing services to three education schools, for a period of two years from the effective date of the composite scheme of amalgamation for the amalgamation of HDFC Investments Limited and HDFC Holdings Limited, wholly owned subsidiaries of HDFC Limited, with and into HDFC Limited and HDFC Limited with and into HDFC Bank.

In a note last week, Nomura India said that institutional investors that it met in Singapore and Hong Kong felt that the worst was behind for HDFC Bank share price. Most investors were comfortable with a potential low-teens loan growth outlook over the near-to-medium term, as the bank is expected to gradually bring down its loan-to-deposit ratio (LDR at 110 per cent as of 3QFY24).

"Investors’ argument here is focused around RoA, which should be on a gradual improvement trajectory as the funding mix gradually improves. While we do concur that HDFC Bank stock may have bottomed (we have a Neutral rating with a target price of Rs 1,625), it is still not a preferred pick for us in the sector, as we do not see a strong case for meaningful upside amid loan growth moderation, which we think should persist over the medium term," Nomura India said.