HDFC, HDFC Bank shares rise as tentative merger date emerges; here's what analysts say

The merger of HDFC with HDFC Bank will likely be effective from July 1 and, if certain formalities are completed in time, the record date for the same would be July 13. The boards of HDFC Bank and HDFC will meet on June 30 post-market hours to clear and approve the merger, HDFC Chairman Deepak Parekh said on Tuesday.

That said, no such information was shared with stock exchanges. HDFC later issued a clarification suggesting HDFC and HDFC Bank were working towards closing of the merger on priority basis and would soon inform exchanges on the record date.

"The dates are tentative and are subject to completion of certain formalities including those which are beyond the control of HDFC Limited or HDFC Bank. Once the board of directors of HDFC Limited and HDFC Bank decide on the effective date of the Scheme as well as the Record Date, the same would be intimated to stock exchanges in accordance with applicable regulations," HDFC said.

Once the deal is effective, HDFC Bank will be 100 per cent owned by public shareholders, and existing shareholders of HDFC will own 41 per cent of the bank. Every HDFC shareholder will get 42 shares of HDFC Bank for every 25 shares they hold, as per the scheme of amalgamation.

"The huge delivery volumes in HDFC twins (Rs 2,900 crore) on Tuesday indicated that selling in the stocks due to 10 per cent holding ceiling for mutual funds is getting absorbed. This indicates that the stock, which was weighed down by concerns regarding the merger, is likely to do well post merger," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

No date for merger is fixed till now, said Nuvama Institutional while noting that the adjustment due to HDFC-HDFC Bank in key indices will take place immediately around ex-date of HDFC merger. "We will keep you posted on all the developments," it said.

Bernstein has reiterated its 'Buy' rating on HDFC Bank with a target of Rs 2,300, saying that impending merger would have a positive impact on cost-to-income ratio.

The merger will push cost-to-income ratio down to mid30s from 40 per cent at present, a media report suggested the brokerage as saying. Trajectory From thereon will require normalisation of funding costs, the report suggested.

HDFC Bank aspired to achieve 30 per cent cost-to-income ratio over the next decade. The benchmark proved elusive for most banks barring large Chinese and a few Middle Eastern banks, Bernstein reportedly said.

On Wednesday, shares of HDFC and HDFC Bank were trading up to 0.80 per cent higher on NSE.

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