HDFC twins merger: What will happen to your HDFC shares after HDFC Bank takeover?

On Friday, HDFC Bank announced the successful completion of the merger of HDFC after the receipt of all requisite shareholder and regulatory approvals. The board of directors of these two entities noted that the merger would be effective from July 1, 2023.

The two HDFC giants decided to merge in April last year and had indicated a time frame of 15 to 18 months for the process to be concluded.

Sashi Jagdishan, CEO & MD, of HDFC Bank, said, “This is a defining event in our journey and I’m confident that our combined strength will enable us to create a holistic ecosystem of financial services. We’re truly happy to welcome the talented team of HDFC Ltd. into the HDFC Bank family. I believe our journey will be defined by agility, adaptability, and a relentless pursuit of excellence. As we navigate the path ahead, we will embrace challenges as opportunities, learn from our experiences, and strive to be the benchmark of success and integrity in the financial services industry”.

While Deepak Parekh is exiting from HDFC after the merger. And the command of the merged entity will now fall under the leadership of Sashi Jagdishan.

In his last letter to shareholders, Parekh said, “It is my time to hang my boots with both anticipation and hope for the future. While this will be my last communication to shareholders of HDFC, rest assured we now stride tall into a very exciting future of growth and prosperity.” He further said, “With the proven execution capabilities of HDFC Bank, we are

confident that Sashi, together with the leadership team will forge an era of new opportunities for the combined entity.”

As per the HDFC Bank’s statement, the merged entity inter-alia brings together significant complementarities that exist between both the entities and is poised to create meaningful value for various stakeholders, including respective customers, employees, and shareholders of both the entities from increased scale, comprehensive product offering, balance sheet resiliency and ability to drive synergies across revenue opportunities, operating efficiencies, and underwriting efficiencies.

What will happen to your HDFC shares post the merger?

Your HDFC shares will be delisted from both BSE and NSE with effect from July 13, 2023. However, there is no need to worry since your HDFC shares will still be traded on exchanges under the HDFC Bank scrip codes on the exchanges.

As per the merger scheme, HDFC Bank will issue and allot to eligible shareholders 42 new equity shares of the face value of Re 1/- each, credited as fully paid-up, for every 25 equity shares of the face value of ₹2 each fully paid-up held by such shareholder in HDFC as on the Record Date i.e., July 13, 2023.

On the merger, Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, “HDFC Bank has been underperforming the Nifty for the last 3 years in spite of its decent growth. This underperformance is likely to change post-merger. The bank which has an enviable track record and excellent execution capabilities will gain from the synergy unleashed by the merger. Presently HDFC Bank is trading at 13.5 times earnings which is a discount to the 5-year average PE of 20. From the Price to Book perspective also the stock is trading at 2.2 times vs the 5-year average PB of 3.5.”

Further, Vijayakumar added, “Institutional selling to comply with the 10% holding ceiling has been weighing on the stock. This will be over once the merger is affected. The prospects of the merged entity look very bright and this will attract more institutional investment from sector-specific funds and ETFs which are not bound by the 10% ceiling.”

HDFC Bank-HDFC merged entity is likely to become the second largest firm in India in terms of market share. As of June 30, HDFC Bank’s market value was at ₹9,51,584.36 crore and HDFC’s capitalization stood around ₹5,22,368.64 crore. Together, the merged entity’s market cap would be ₹14,73,953 crore — which will be higher than Tata Consultancy Services (TCS) which currently holds the second largest firm title with a market cap of ₹12,07,669.91 crore. Mukesh Ambani’s Reliance Industries will continue to be the largest firm in terms of market cap ( ₹17,25,704.60 crore currently) followed by HDFC Bank-HDFC merged entity and TCS in second and third spot.

Meanwhile, weightage in the Nifty index, the relative weight of HDFC Bank merged entity would be around 15% in the current scenario. At present, HDFC Bank contributes 9.23% and HDFC contribute 6.16% in Nifty, together they contribute 15.39% in Nifty.

Post the merger, HDFC Bank has no identified promoter. Further, it marks the transformation of HDFC Bank into a financial services conglomerate that offers a full suite of financial services, from banking to insurance, and mutual funds through its subsidiaries. So far, this leading private sector bank was a distributor for these products.

Also, post the merger, all employees of HDFC as of the effective date become HDFC Bank employees. Over the past months, the Bank has been preparing for smooth integration not only of systems and processes, but also of all aspects that will make HDFC Bank a welcoming place of work for the employees from HDFC.

Further, the key HDFC Bank subsidiaries include HDFC Securities, HDB Financial Services Ltd., HDFC Asset Management Co. Ltd, HDFC ERGO General Insurance Co. Ltd., HDFC Capital Advisors Ltd., and HDFC Life Insurance.

Updated: 01 Jul 2023, 11:20 PM IST