HDFC Bank hits 52-week high on merger with HDFC, Morgan Stanley says valuation attractive

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The HDFC Bank share price gained over 2 percent on July 3 and hit a fresh 52-week high after the lender announced completion of merger with its parent HDFC Ltd.

The private lender's top boss, Sashidhar Jagdishan, has said that HDFC Bank can now create a new bank its size every four years after the merger.

At 10:20 am, the HDFC Bank stock was quoting at Rs 1,757.50 on the NSE, up 2 percent over the previous close. Trading volumes at the time were over 10 million shares. HDFC Ltd was also trading 2.6 percent higher at Rs 2,925 on the NSE.

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Given the combined entity's large and growing distribution and customer franchise, more-than-adequate capital, healthy asset quality and profitability, Jagdishan believes the bank is well placed to serve the under-penetrated markets.

According to analysts, this is an opportune time to invest in HDFC Bank which is on a rapid growth path. Foreign broking firm Morgan Stanley believes the stock is a compounder and is trading at attractive valuations.

The bank's current valuation is at 16 times the one-year forward earnings per share (EPS), which is 20 percent below the 15-year average, it said. This means that the stock is trading at a relatively lower price compared to its historical average.

"HDFC Bank has a strong track record of delivering investor returns. Additionally, the bank is expected to benefit from cyclical tailwinds, which will assist in navigating the challenges posed by the merger," the firm said.

With the deal getting effective, HDFC Bank will be 100 percent owned by public shareholders, and existing shareholders of HDFC will own 41 percent of the bank. Every HDFC shareholder will get 42 shares of HDFC Bank for every 25 shares they hold.

The board of directors of HDFC Bank in consultation with the board of directors of HDFC Limited has fixed July 13, 2023, for determining the shareholders of HDFC Ltd who would be issued and allotted the shares of HDFC Bank.

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