Shares of HDFC Bank have once again managed to hog the limelight after the bank’s December quarter results were a beat on expectations. The private sector lender reported an 18.5 per cent increase in its standalone net profit at Rs 12,259.5 crore for the quarter ended December 2022 against a net profit of Rs 10,342 crore in the same quarter of the previous financial year. Total income rose to Rs 51,207.61 crore in the October-December quarter of FY23, against Rs 40,651.60 crore in the same period a year ago.
HDFC Bank shares’ returns & the upcoming merger
The D-Street journey of HDFC Bank stock has been rough for the past few years. The stock is up only 8 per cent in the last one year. In 2021, the Sensex was up nearly 30 per cent while HDFC Bank’s shares clocked gains of just 3 per cent.
However, long-term investors have made reasonable gains as the stock has zoomed over 390 per cent in the last 10 years.
Notably, the large-cap stock, which used to hover around Rs 300 odd level in 2013 is now trading well over Rs 1,600. On Wednesday (January 18, 2023), the large-cap stock ended 1.76 per cent higher than the previous day’s close at Rs 1,636.95 on BSE. The market cap of the bank rose to Rs 9,12,886.97 crore.
Shares of HDFC Bank and HDFC were on a roll in April 2022 after the boards of mortgage players and the largest private sector bank approved the merger in their respective meetings. Once merged, the new entity will have a combined asset base of around Rs 18 lakh crore.
The markets cheered the news with the shares of HDFC surging 16 per cent on the BSE in intra-day trade on April 4, 2022, while HDFC Bank went up by around 14 per cent.
The merger is expected to be completed by the second or third quarter of FY24. Every HDFC shareholder will get 42 shares of HDFC Bank for 25 shares held.
According to VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the merger of HDFC with HDFC Bank is an unprecedented mega-merger that will benefit all stakeholders. The shareholders of both entities stand to benefit substantially, the signs of which are visible with the sharp upward movement of their stock prices.
For shareholders, Vijayakumar said that this was far better than a buyback at higher prices and that the mega-merger would correct the recent underperformance of the HDFC twins.
HDFC Bank: From Aditya Puri to Sashidhar Jagdishan
HDFC Bank was incorporated in August 1994 in the name of HDFC Bank Limited, with its registered office in Mumbai, India. The bank commenced operations as a Scheduled Commercial Bank in January 1995.
Aditya Puri, the former MD of HDFC Bank, transformed HDFC Bank into India’s second-largest bank. Puri, who was the first employee and the first CEO of the bank, is credited with laying the foundation of the bank. He had a 26-year career with HDFC Bank, which ended in October 2020. Interestingly, he is also famous for not carrying a cell phone.
HDFC bank started with corporate lending and then shifted focus to retail lending. In fact, the bank was also successful in transforming itself into a digital bank during Puri’s tenure. Under Digital 2.0, it worked on technologies like robotic process automation, machine learning, AI and blockchain.
In October 2020, the board of HDFC Bank approved the appointment of Sashidhar Jagdishan as the new Managing Director and Chief Executive Officer. Known as the “dark horse”, Jagdishan joined HDFC Bank in 1996 and rose through the ranks to become Head of Finance and HR at the company. In 1999, he was appointed Business Head of Finance. Jagdishan was then appointed as Chief Financial Officer in 2008.
Under the leadership of Jagdishan, the bank built two ‘factories’ — the enterprise factory and the digital factory — which enabled the bank to create new architecture and new designs on the cloud to compete on equal footing with the fintech players which threaten to disrupt the banking space.
It also partnered with fintech like Paytm to grow in new areas and jointly tap the small merchants’ segment for payment solutions and lending.
HDFC Bank stock future outlook
As of now, experts seem to be cautious about the HDFC merger transition but feel that the valuations are reasonable at this point in time.
According to Emkay Global, HDFC Bank remains one of the few banks to clock a strong deposit growth amid rising competition for deposits, given its robust franchisee.
LKP Securities expects HDFC Bank to outperform the sector in the long run led by healthy balance sheet growth, much higher provision than the regulatory requirement in the balance sheet and best-in-class underwriting and risk management practices.
Slower deposit growth in the run-up to the merger is a negative, but the management continues to guide for strong growth in the March quarter, said Nuvama Institutional Equities.
It remains to be seen how the merger pans out for the shareholders of HDFC Bank and HDFC.