Value unlocking happens at one go. Teen CAGR still ahead
Disc: My largest holding
I feel the HDFC shareholders could have gotten a little more, since the core mortgage business was so undervalued but i feel the combined entity would be a create wealth creator, HDFC would get lower CoF and cheaper compliance to the RBI mandates while the bank finally gets a mortgage business and higher FII limits.
HDFC Bank, HDFC merger seems to be a win-win deal
The deal brings many cross-selling opportunities for HDFC Bank because of the large customer base and product portfolio of HDFC. About 70% of HDFC’s customers do not bank with HDFC Bank, according to the management. Further, nearly 70% of HDFC Bank’s customers are without any mortgage products and this untapped lot is expected to increase the mix of mortgage portfolios from 11% at present to more than 30% after the merger
Would request senior boarders and other members to throw some light on the combined entity’s book, and what could be the possible range of how the market might value the combined entity in P/B multiples? Going forward what could be growth expectations of the combined entity?
Disc. Holding the stock.
Another view on how the merger might play out; clash of cultures, people integration issues leading to low customer satisfaction.
This is overly pessimistic. The merger will be hard but it’s not going to be such a dramatic culture clash. HDFC Bank already sources a large number of loans for HDFC, it’s not like the staff will be doing something dramatically new .
The large exodus he’s talking about because HDFC bank is fast paced is not beliveable. HDFC Bank has a book made of fully short term loans so the staff has to run non stop to keep growing it, hdfc has some of the best mortgage under writers in the country and operates a ultra lean cost structure, to think they 3000 employees won’t have a place is very hard to believe
And these are basically the same entity , it’s not going to be so dramatically different. There is a shared DNA. It will be hard, there is uncertainty regarding the subsidiaries, there will be slr and crr costs but these is a high chance of things going well imo
Con call on merger
I maybe wrong but to me as a small investor, the merger is a no event. Many years earlier, a seperate NBFC made sense but now, as per new regulations, a merged entity makes sense. It is good for the HDFC group and hence the customers. For investors like me, it’s practically a no event.
Although need to see what’s the short term impact on HDFC Life ownership.
Disc. Invested in HDFC group companies. Not a buy/sell recommendation
Hi Vineet, Do you see this differently after the expected merger with regards to return expectation? Look forward to what your views are.
Marc Rubinstein- Another view
Hi @chaitanyakhanna, no I don’t. In fact I think HDFC shareholders will get a better deal than HDFC Bank shareholders through the merger, and so the 20% CAGR seems even more certain over a three year period.
Very crudely, the impediment for HDFC Ltd will be conforming to statutory liquidity requirements and priority sector loans, which hopefully RBI will give it the necessary time to achieve. This will be a bit of a drag on growth in the short term, but not too major in my opinion as the housing loans market seems like at an inflection point of high growth anyway. The merged entity should logically have valuations somewhere between what HDFC and HDFC Bank have at the moment (close to 3 times merged entity book), but with huge growth capital and massive synergies once the integration is completed. I won’t be surprised if this gets rated up to present HDFC Bank valuations of 4 times book pretty quickly.
Does anyone have any idea related to the recent sell off , I understand FII selling & HDFC bank results, but the amount of fall looks overstated to me , if attributed to those factors.
Are any large players quietly getting out or something? Or any other such specific information which is causing this.
Disc: Invested , Biased & looking to add more.
do you think there is quietness in the counter?? its moving like bitcoin, november 21 high 3017 then came down to 2058 in march 2022 then again shoot up to 2950 now crashed down to 2120. its been a roller coaster ride in this counter. seems fii’s hell bent on bringing down this market and they found a worthy pair in hdfc twins. hope sanity returns sooner than later.
i feel it is heavy FII selling in anticipation of HDFC’s removal from the MSCI
The discount between hdfc and hdfc bank post swap is increasing and that to me indicates concentrated selling in only hdfc
Ideally other institutions owning hdfc bank should be selling and buying hdfc for the arbitrage but if that is not happening then the selling is outstripping that
There is absolutely nothing wrong with the results and post merger the bank will stronger. I feel it purely forced FII selling combined with speculation and the stories of NIM is down by 10 bps so that justifies the stock correcting by 10% after a year of sever under performance sounds like post event reasoning
Disc: buying on every decline
There is some concern regarding risk of derating of HDFC bank since market is expecting a slowdown since SLR & CRR requirement and that has accelerated by the bank’s focus on wholesale lending and reduced retail lending (since retail lending provides more NIM however for wholesale the credit cost is also low so the bank can still make similar ROA). That only explains the fall in HDFC Bank and HDFC Ltd price post HDFC Bank result. Price of HDFC is now moving in proportion to HDFC Bank. It seems like market sees them both now as one company.
Disclosure: Invested in both HDFC & HDFC Bank.
This is definitely be a drag for a few quarters post merger but it doesn’t explain the dramatic stock correction
Ultimately if the RoA is the same and the bank is able to leverage more because the secured wholesale book is lower RWA that will translate to higher RoE. The addition of the housing book will add to this. Banks like ICICI and axis have >30% of the book in low margin housing loans, trick is they can leverage a lot more.
Ideally but if you notice the discount is getting wider, it was 3% and now it is closer to 5% so it is selling pressure on hdfc itself
I read in books so many times that stock markets don’t move in equilibrium. I guess this is such an example. Have you seen what happend to castrol India’s share price due to fear of EV since 2015. Though their profits have increased actually. Same thing with Gulf oil lubricants. ITC share price underperformed since 2019. I’m afraid everyone is starting to discount HDFC bank now. Even though the bank is actually growing pretty well.
I don’t think the discount will be huge going further.
That is what I’m betting on.
Rationale for the same plz.
Share ur valuation, inputs, facts and data points plz.
Nd ur disclosure so ur biases can be accessed.
Plz maintain the usability of the forum. These one liners degrade the platform and do no good to anyone.
Clarification against news item appearing in the economic times on “HDFC to sell four large
stressed accounts before merger”