HDFC twins shine as analysts see all-round benefits

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HDFC Bank and HDFC shares jumped on Monday as analysts see an overall benefit per unit.

The decision to merge the HDFC twins on April 4, 2022 has reached the final stage. HDFC Bank will issue and allocate to the Eligible Shareholder 42 shares of par value of ₹ 1 each, credited as fully paid, for every 25 shares of par value of ₹ 2 each fully paid held by such shareholder in HDFC Ltd from 13th July – date Register.

While HDFC shares jumped nearly 1.8 percent at $2,871.35 on the NSE, HDFC Bank rose 1.1 percent at $1,719.80 on the NSE. The combined market capitalization of HDFC and HDFC Bank was INR 14,93,119.33 crore on BSE. a bloomberg A report last week said the merger would propel HDFC Bank to be the fourth largest bank by market capitalization.

“Very attractive”

According to Morgan Stanley, HDFC is “established in attractive valuations.”

New Constructs, a US-based independent research technology firm, rated HDFC Bank as “attractive.”

“HDFC Bank Ltd is one of 62 companies to receive an attractive credit rating out of 125 companies in the Large Financial Credit Rating Group,” New Constructs said, adjusting adjusted debt-to-capital and adjusted EBIDTA-to-debt ratios as follows. Very attractive” and debt-adjusted free cash flow and debt-adjusted cash flow as “attractive.”

However, the research firm said adjusted interest coverage is “neutral.”

Target price $2,110

Morgan Stanley, who appealed the rating with Overweight on HDFC Bank, said, “The merger is synergistic. HDFC Bank has access to a long term secured retail mortgage product as well as a large client base. Its product range – plus direct access to insurance and other subs – and geographic reach is superior to that of most private banks.”

The global investment advisor said that strong lagging investments and cyclical tailwinds (benign asset quality and improved real deposit rates) will help it better weather integration challenges and return to 17-18 percent EPS growth after one year. .

Axis Capital, which came out with a buy call and target price of INR 2,150, said the merger would create a giant (FY24 loans priced at Rs 25 crore, 15.7 per cent market share) that could generate strong growth (approximately the CAGR of the loan). by 17 percent) and profitability (about 2 percent return on assets).

NIM will likely decline immediately after consolidation before it begins to improve over time.