Record High for HDFC Bank as Merger with HDFC Unleashes Promising Growth Potential, Backed by Morgan Stanley's Bullish Outlook on Attractive Valuations!

With the completion of the merger between HDFC Bank and its parent company HDFC Ltd, the private lender's ownership structure has undergone a significant change. As a result, HDFC Bank will now be entirely owned by public shareholders, while the existing shareholders of HDFC will hold a 41 percent stake in the bank.

Following the announcement of the merger, HDFC Bank's share price experienced a positive movement, increasing by over 2 percent on July 3 and reaching a new 52-week high. At 10:20 am, the stock was trading at Rs 1,757.50 on the NSE, representing a 2 percent rise compared to the previous close. The trading volumes at that time exceeded 10 million shares. Additionally, HDFC Ltd's stock also exhibited a 2.6 percent increase, reaching Rs 2,925 on the NSE.

Sashidhar Jagdishan, the CEO of HDFC Bank, expressed optimism about the bank's future prospects following the merger, stating that it has the potential to create a new bank of similar scale every four years. Jagdishan emphasized the combined entity's considerable distribution and customer franchise, ample capital, healthy asset quality, and profitability as factors that position the bank well to serve under-penetrated markets.

According to analysts, this is an opportune time to invest in HDFC Bank, as the institution is currently on a rapid growth trajectory. Morgan Stanley, a foreign broking firm, considers HDFC Bank's stock to be a compounder and views its valuation as attractive. The bank's current valuation stands at 16 times the one-year forward earnings per share (EPS), which is 20 percent below the 15-year average. This suggests that the stock is trading at a relatively lower price compared to its historical average.

Morgan Stanley further highlighted HDFC Bank's strong track record in delivering investor returns and anticipated benefits from cyclical tailwinds, which are expected to help the bank navigate the challenges associated with the merger.

As a result of the merger, HDFC Bank's ownership will be fully transferred to public shareholders, while existing shareholders of HDFC will retain a 41 percent ownership stake in the bank. In the exchange ratio, each HDFC shareholder will receive 42 shares of HDFC Bank for every 25 shares they currently hold.

The board of directors of HDFC Bank, in consultation with the board of directors of HDFC Ltd, has set July 13, 2023, as the date for determining the shareholders of HDFC Ltd who will receive the shares of HDFC Bank.

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