BLOG
HDFC Bank merger process with HDFC Ltd on track; outlook positive!


What's Buzzing
HDFC Bank's analyst meet day offered insights on the ongoing merger of HDFC Bank with HDFC Ltd along with its long term vision.
Context
In more than a decade, HDFC Bank has delivered sustainable business growth (more than 20% CAGR) coupled with prudent asset quality across cycles (GNPA at 0.9-1.3%) and consistently higher return ratios (RoA at 1.8-2%) aided by continued focus on building physical and digital capabilities along with customer acquisition and experience. Recently, the bank announced a merger with parent HDFC Ltd, given regulatory convergence and market development, which has improved the risk-reward proposition.
Our Perspective
With the merger advancing ahead, HDFC Bank aims to double its balance sheet in the next five years, exhibiting growth of ~15% CAGR. Expanding physical presence (plan to double branches in the next three years), focus on digital capabilities (plans to change tech stack in three to four years), enhancement of product ecosystem for better customer experience, push in newer segments (MSMEs) and geographies (rural & semi urban areas) are seen enabling the bank to achieve targeted growth and profitability. In the initial phase, deposit mobilisation and improving reserves (including CRR, SLR and PSL) should be in focus while credit growth is expected to follow keeping return ratios trajectory unabated. Long term vision, post-merger, is to provide asset diversification with reduced cyclicality, create long term customer relationship (through deposits mobilisation led by branch expansion) and provide cross-sell opportunity (to existing HDFC Ltd customers). The management is confident of delivering sustainable growth and accretive return ratios post-merger, though volatility on NIMs and opex ratios cannot be ruled out. Overall, strong core fundamental and scalability with focus on technology remain strengths though execution and sustainable headway remain key enablers.
On the valuation front, the current price seems to be factoring in near term merger related volatility though given core fundamental strength with historical track record and long term vision, we remain positive on the stock.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
Related content
Blogs
Articles - Stocks
Advantages and Disadvantages of NPS
It is a long established fact that a reader will be distracted by the readable content of a page when looking at it...
Articles - Stocks
Advantages and Disadvantages of NPS
It is a long established fact that a reader will be distracted by the readable content of a page when looking at it...
Articles - Stocks
Advantages and Disadvantages of NPS
It is a long established fact that a reader will be distracted by the readable content of a page when looking at it...
Video

Video - Stocks
What is Book Value?
Book Value Explained – Find out what is book value in stocks in this video by ICICIdirect.com.

Video - Stocks
What is Book Value?
Book Value Explained – Find out what is book value in stocks in this video by ICICIdirect.com.

Video - Stocks
What is Book Value?
Book Value Explained – Find out what is book value in stocks in this video by ICICIdirect.com.
Podcasts


