Mega Merger - HDFC-HDFC Bank - My Experience....!!!!

(04/04/2022)

On the 4th of April, in the morning, the HDFC and HDFC Bank set to shock the world by announcing the mega-merger, which is to date the largest merger in the Indian Financial Sector. Dalal-Street welcomed this decision wholeheartedly, with both the companies being up more than 9 % on a closing basis. HDFC and HDFC Bank, since 2020, have been hugely underperforming due to several reasons. As a result of such mega news, it brought a lot of attention. I believe this merger is quite a strategic move, as the company paves its way towards the financialization of the country. This merger was expected in 2017, but at the time, it was said that we will proceed once the environment is suitable. Then questions such as why now and what changed since 2017 arrises. Generally, Banks have more constraints in terms of regulations than NBFCs, and past few years, the government has been working towards tightening the regulations for NBFCs as they don't want a parallel financing machine, which is growing at the rate of banks while having lighter regulations. Hence current environment is thus suitable for NBFCs converting to banks as they can have a lower cost of borrowing and also the regulation fear is less. Now they're a lot of pros and cons to this merger and also the execution difficulties the companies will face. As of 4th April 2022, I did not have even 5% of the technical knowledge regarding the banking field/regulation that I am having right now. After doing 1-2 valuation projects of non-financial companies, I was waiting for some news, through which I can deep dive into the financial sector. A valuation perspective for financial and non-financial sectors is pole opposite, hence learning about the same was important. Since morning I was reading articles as to why the merger is done now, who is benefitting and how is he benefitting!! I am thinking of valuing the combined entity, but for that first, I need to be technically sound, then will proceed with the valuation. Hence for a few days, I will keep reading about the merger. Main things I learned in the morning >Strategic Moves and how/when to execute them >Thinking about the bigger picture >A brief about Indian Banking Sector >How investors react to the news, how to read between the lines >Regulations and how sensitive the company is to the country's economy >What regulations are getting violated, how do the companies need to approach the same >Which company is winning, how much can it affect the parent company?

Research Work - Here you can see most of the basic questions regarding the merger answered....!

HDFC - HDFC Bank Merger