Recommendation: Buy
CMP = Rs 1,423
Price target: Rs 1,747
Key points:
- Boards of HDFC Bank and Centurion Bank of Punjab (CBoP) approves merger plan in an all-stock swap deal (in ratio of 29:1) – Shareholders to get one HDFC Bank share for every 29 they hold of CBoP after merger which will create India’s largest private bank in terms of branches.
- The combined entity will have a nationwide network of 1,148 branches. That’s more than existing private sector leader ICICI Bank which has close to 955 branches.
- Merger to boost HDFC Bank's retail penetration substantially. The deposits would climb up to Rs 1,20,000 crore, advances to Rs 85,000 crore while balance-sheet size would swell to Rs 1,50,000 crore, Housing Development Finance Corporation (HDFC) Limited chairman Deepak Parekh said.
- Merger dilutive in short-term, but beneficial in long-term for HDFC Bank. I strongly recommend Buy option for HDFC Bank with a price target of Rs 1,747 over next 6 months.
