HDFC Bank hits 52-week low; slips 26% since merger announcement with HDFC

Slower-than-expected credit growth amid weakening macros due to the Ukraine-Russia conflict; further softness in margins due to slower retail credit growth are key risks according to analysts

Shares of HDFC Bank hit a fresh 52-week low of Rs 1,282.35, down 2 per cent on the BSE in Thursday's intra-day trade. The stock has fallen 26 per cent since the announcement of its merger with housing finance company, HDFC Ltd. The stock had hit a high of Rs 1,721.85 on April 4, 2022 in the intra-day trade. Moreover, it had touched a 52-week high of Rs 1,724.30 on October 18, 2021.

On April 4, HDFC and HDFC Bank announced that their boards have approved an all-stock amalgamation of the former into the latter to create a banking behemoth, subject to regulatory approvals. As part of the deal, shareholders of HDFC Ltd will receive 42 shares of the bank for 25 shares held. The subsidiary/associates of HDFC Ltd will become subsidiary/associates of HDFC Bank.

The entire process, including getting approvals from shareholders of HDFC and HDFC Bank respectively, Reserve Bank of India (RBI), stock exchanges, Securities and Exchange Board of India (Sebi), and other regulatory approvals will take 15-18 months. Till all the approvals are in place, both HDFC Ltd and HDFC Bank will operate as separate entities.

Last month speaking at The Economic Times' India Economic Conclave 2022, Keki Mistry, vice chairman and chief executive officer (CEO) of HDFC Ltd said, "Dowfall in the stock prices is very short-term. We have not been able to communicate in a very articulate manner and clear manner on the HDFC merger as earnings were due". CLICK HERE FOR FULL REPORT

"As far as the merger is concerned, the bank/HDFC will have time (2-3 yrs) to moderate regulatory drag by building buffers in both entities, but at the cost of margins in the interim. Factoring in lower NIMs/higher opex, we cut FY23-24E earnings by 2-3% and expect average sustainable RoE to moderate to around 17 per cent from around 17.6 per cent earlier," analysts at Emkay Global Financial Service had said in HDFC Bank's March quarter results update.

Slower-than-expected credit growth amid weakening macros due to the Ukraine-Russia conflict; further softness in margins due to slower retail credit growth/regulatory buffer builtup in the run-up to the merger; and delay in getting regulatory approval for the proposed merger of HDFC are key risks, the brokerage firm said.

"As per the bank, the merger is expected to be EPS accretive from the first year itself. While the synergies look appealing, we think that there are also multiple challenges include impact of Statutory Liquidity Ratio (SLR), Cash Reserve Ratio (CRR), and Priority Sector Lending (PSL) compliance cost – although the management believes that it will be lower than previously envisaged and the overall merger benefit should be larger than the regulatory cost, the RBI’s aversion to banks holding considerable stakes in para-banking businesses will be a key concern," added analysts at Nirmal Bang Equities.

Meanwhile, shares of HDFC also shed 3 per cent at Rs 2,127.60 on the BSE in the intra-day today. They have slipped 25 per cent from their April 4 high level of Rs 2,855.35. The stock had hit a 52-week low of Rs 2,046.30 on March 8, 2022.