HDFC twins merger gets thumbs up from brokerages even as stocks slump after rally


HDFC on April 4 said its board had approved merger into HDFC Bank expected by the second or third quarter of FY24.

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After surging nine percent in the previous session, shares of HDFC Bank and HDFC fell on April 5 .

HDFC was quoting at Rs 2,640.65, down Rs 38.25 or 1.43 percent, and HDFC Bank was quoting at Rs 1,631.05, down Rs 25.40 or 1.53 percent on the BSE.

HDFC on April 4 said its board had approved merger into HDFC Bank expected by the second or third quarter of FY24.

“This is a merger of equals. We believe that the housing finance business is poised to grow by leaps and bounds due to the implementation of RERA, infrastructure status to the housing sector, and government initiatives like affordable housing for all,” Deepak Parekh, chairman of HDFC, had said.

Check out what brokerages have to say about HDFC and HDFC Bank after the merger announcement:

Morgan Stanley

The proposed merger benefits both HDFC Bank and HDFC, while it would be EPS (earnings per share)-accretive in the first full year (FY25), CNBC-TV18 quoted Morgan Stanley as saying.

RoE (return on equity) falls in the near term given capital accretion, while loan growth pick-up would imply pre-merger RoE by FY26, it added.


This transaction is beneficial to HDFC Bank in terms of increased housing portfolio in the overall loan book, scaling up technological capabilities further, leveraging the lower cost of funds and improved cross-selling opportunity.

We believe the bank will sustain the relative premium valuation compared to its peers due to the significant growth opportunity and strong prospects. Currently, the shares of HDFC Bank are trading at a P/Bv of 3.9x/3.5x/3.0x on FY22E/23E/FY24E.

We are working on the merger synergies and building them into our estimates; till then, we continue to assign a 3.7x P/Bv on FY24E adjusted book value of Rs 540, arriving at a target price of Rs 1,997 per share for HDFC Bank; implying an upside potential of 20.7 percent over current market price. Accordingly, we maintain the rating on the shares of HDFC Bank as “BUY”.

Prabhudas Lilladher 

While the merger would seem attractive purely from a scale perspective we need to factor in some key variables. Firstly, the merged entity would need to adhere to CRR/SLR and PSLC requirements which would be a slight drag on the margins.

Secondly, HDFC Bank may not underwrite a chunk of developer loans that HDFC used to onboard which could be countered by addition of below-prime housing customer loans. Hence overall yields might compress. This would be offset by lower cost of funds owing to the bank’s access to CASA deposits.

On an operating level, branches in similar locations might be merged which could save on costs although for branches not present in common locations, transition costs would be incurred. Hence prima facie it seems that RoE for HDFC Bank could drop from current levels, immediately following the merger, although the merger would be positive from a scale and cross-sell standpoint. Rolling forward to FY24ABV we maintain multiple at 3.6x but raise target price to 2,000. Maintain Buy.

Elara Capital 

HDFC will benefit the most from the merger as the overhang of succession gets resolved, holding company discount stands behind and RoE suppression is contained as also low-cost funding becomes accessible.

Factoring in the competition, changing lending rate environment and the company’s superior credit management skills, we expect HDFC to post 16% loan CAGR, 2.5% average NIM and 2.2% average GNPA in FY22E-24E.

This may translate into core book RoA of 1.9% and RoE of 12-13% in FY22E-24E.

At the current market price, the core book trades at 1.8x PABV FY24E, which we value at 2.9x PABV FY24E with SoTP-based target price of Rs 3,284. Maintain Buy.

Disclaimer: The views and investment tips expressed by investment experts on are their own and not those of the website or its management. advises users to check with certified experts before making any investment decisions.

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