HDFC-HDFC Bank merger will quicken HDFC Bank’s growth further: Marcellus’ Saurabh Mukherjea

HDFC Bank | CMP: Rs 1,348.20 | The share price ended in the red on July 18. HDFC Bank reported Rs 9,195.99 crore standalone net profit for the quarter ended June, up 18.79 percent from the year ago period. Net interest income (NII) stood at Rs 19,481.40 crore, up 14.5 percent year-on-year (YoY). According to Credit Suisse, the results were in line despite Rs 1,300 crore of treasury loss. The credit costs remained low at one percent, aiding healthy return on assets of 1.8 percent. Credit Suisse has raised FY23-24 earnings per share (EPS) estimates by two to three percent and expects 17 percent plus return on equity (RoE).

Saurabh Mukherjea, founder, Marcellus Investment Managers, reacting on what the HDFC-HDFC Bank merger means going forward, said that if one looks at HDFC Bank’s progress in the last three years, the lender’s has been an impressive performance with robust growth in market share and margin improvement, and expects the growth story to go still further.

About his outlook when it comes to the bank’s fundamentals, Mukherjea told CNBC-TV18, “I have always said in the last three years that HDFC Bank has been stellar in the way it gained market share. If you add up the gains of the entire private sector banking space and compare that with gains made by HDFC Bank in the last three years, you find HDFC Bank has made significant gains.”

Endorsing the merger plan, he said, “We guess this merger will hasten HDFC Bank’s growth. From the historical 20 percent, it will go up by 2 percentage points. ROE (return on equity) will also go up. This will be a good economic recovery for the bank.”

Asked whether the merger would be more beneficial for HDFC shareholders, Mukherjea agreed, saying the proposed merger will help leverage and create meaningful value for various stakeholders.

“HDFC shareholders are benefited due to HDFC Bank’s lower-cost funding base and established distribution network of the bank,” he said.

He stressed that the merger will also remove a critical disadvantage HDFC Bank has always faced with respect to mortgage assets.

Also Read: Markets surge 2% in morning trade as HDFC twins declare merger

“Until now, since HDFC Bank didn’t have a mortgage book, they used to sell it to HDFC which needed to rotate it far quicker, and this was a disadvantage when compared with” the functioning of ICICI Bank, he said.

Listing other benefits for HDFC Bank from the merger, Mukherjea said, “HDFC Bank will now retain mortgage loans in its balance sheet. For the given amount of ROE, the cost incurred will be much lower. HDFC Bank holding on to home loans will be a big deal for shareholders.”

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He also believes that when the deal happens, the bank’s life insurance and general insurance segments will also accelerate.

“We may look for giant customer base, high efficiencies in the next three to five years, their 3 percent market share gain in the last three years is remarkable,” he added.

On being asked whether the combined entity will become the largest weighted stock in the stock market index and whether it gives it consolidation in the financial space, he said the distribution reach of four giant players in the financial technology space is unmatched.

Also Read: Why did HDFC decide to merge with HDFC Bank now?

He said, “We are ending up four giant financial conglomerates—Axis Bank, ICICI Bank, HDFC Bank and Bajaj Finserv—with superior data, technology and efficiency.”

He added that the big four’s rivals will really have to think about their strategies after the today’s mega-merger.

Also Read: HDFC, HDFC Bank merger to create third-largest company in India