HDFC, HDFC Bank shares still ‘attractively priced’ after 15% rally post merger news: Analysts

As part of the deal, shareholders of HDFC Ltd will receive 42 shares of HDFC bank for 25 shares held, Avaneesh Parasar

Shares of HDFC Ltd and HDFC Bank surged more than 15% to ₹2,818 and 14% to ₹1,715 apiece respectively on the BSE in Monday’s early deals, after the companies announced plans to merge with each other. Meanwhile, the Nifty Bank index rose over 4%, while the finance index gained over 3%.

India’s largest private lender HDFC Bank will merge with the housing finance company HDFC Ltd to create a financial services conglomerate, sending their shares sharply higher.

“This mega merger will correct the recent underperformance of the HDFC twins. The stock prices of HDFC twins are likely to remain firm even after this morning’s sharp spike. From the valuation perspective the HDFC twins are even now only attractively priced in a highly valued market. FPI’s strategy of sustained selling in HDFC twins have been proved to a short-sighted decision,” said VK Vijayakumar, Cheif Investment Strategist at Geojit Financial Services.

As part of the deal, shareholders of HDFC Ltd will receive 42 shares of the bank for 25 shares held. Existing shareholders of HDFC Ltd will own 41% of HDFC Bank. Shares held by the housing finance company in the lender will be extinguished, making HDFC Bank a full-fledged public company. The subsidiaries and associates of HDFC Ltd will shift to HDFC Bank, the companies said in a regulatory filing.

“The timing of the merger has caught everyone by surprise but the merger by itself is not surprising. The merger will be more beneficial to HDFC Ltd. since it has a lower profitable business and with HDFC Bank it can increase its product penetration. However, the business-related synergies could have been driven without the merger also,” said Abhay Agarwal, Founder, and Fund Manager, Piper Serica.