HDFC Bank - HDFC Ltd Merger : Impact on industry and Investors

Merger and Acquisition are part and parcel of corporate world. Sometimes this can result in a HUGE company. Recent merger of HDFC Ltd with HDFC Bank is a proof for the same.

• On 1st July 2023, HDFC Ltd (Housing Loan Company – Parent Company) has been Merged with HDFC Bank. And HDFC Ltd Shares would be DELISTED on 13^th July 2023
• ·        As on 30^th June 2023
• o   HDFC Bank shares (Face value: Rs.1) was trading at Rs.1701
• o   HDFC Ltd shares (Face value:Rs.2) was trading at Rs.2821
• ·        Every 25 shares of HDFC Ltd would be swapped (replaced) with 42 Shares of HDFC Bank on 17^th July 2023
• ·        The combined entities market value would be US$ 172 Billion.
• ·        It would be the 4^th largest bank in the world – behind JP Morgan Chase & Co, Industrial & commercial bank of China and Bank of America.
• ·        In one GIANT LEAP, HDFC Bank overtakes the market cap of SBI (US$ 62 Billion) and ICICI (US$ 79 Billion).
• ·        Post merger, HDFC Bank will have 120 Million Customers across 8300 branches and more than 1,77,000 employees.
• ·        70% of HDFC Ltd customers do not have a HDFC Bank account.
• ·        And 2% of HDFC Bank customers have a housing loan with HDFC Ltd.
• ·        Thus, the merger gives HUGE Scope for growth – projected at 18% to 20%. This can result in the market cap DOUBLE in four years flat.

Impact on Investors:

• ·        (Retail) Investors can celebrate. It is a WIN-WIN situation for both company share holders.
• ·        International Investors (FII’s and FPI’s) now have another company in World’s TOP 100, beyond Reliance and TCS.
• ·        FPI’s may invest close to US$ 3 billion in the merged entity.
• ·        However, domestic mutual funds have a problem. As per SEBI norms, MF’s cannot hold more than 10% in a company. And many mutual funds have been holding 6% to 7% in both. This may FORCE them to sell some shares (Rs.40 Billion or US$ 0.49 Billion) to bring down their holdings to 10%.

After the initial price adjustments, HDFC Bank share holders can hope for the best – given the synergies between the two companies.