Let me use this article to answer a few questions.

Will Hdfc Ltd. be merged into Hdfc Bank?

If yes, when?

Will the ratio be favoring the bank or will it be favoring the erstwhile parent.

A brief introduction: Hdfc Ltd. is a company formed in the 1970s – and its first public issue was in 1978 if I am not wrong (I am not even doing arm chair research or checking of dates please). It has been a super multi bagger and has been paying nice big dividends also. Apart from making money in housing finance Hdfc has promoted many businesses / funded many start ups and this has also added a lot of value to the shareholders. 3 of the prominent start ups are Hdfc bank, Hdfc asset management company (aka Hdfc Mutual Fund) and Hdfc Life Insurance. They also have a General Insurance business.

In 1994 Hdfc Ltd did an IPO of Hdfc Bank where the equity shares were issued at par, and the shareholders of Hdfc Ltd. were given 200 shares as a firm allotment. Many shareholders of Hdfc Ltd. may have still held on to the bank shares and hence benefited hugely from the surge in the prices of the parent company and the bank.

The group’s main strength today is the bank. The bank’s strength comes from the fantastic branch net work. This branch network brings in all the moolah – in form of deposits, casa balances, loans, and very importantly sales of life insurance and mutual fund products. In case of mutual fund products it is a case of open architecture – the bank sells all mutual funds (legally it can, practically it sells the most profitable), but in case of life insurance, it is a tied arrangement. This means for Hdfc bank there is NO CHOICE BUT to sell Hdfc Insurance. This means for Hdfc Insurance it is like having 50,000 feet on street – and they have a nice office from which to do their sales. Of course it should be a part of the group philosophy to sell more of the home grown mutual fund also.

The merger will release a lot of people – the bank will logically not need the Hdfc Ltd’s branch network – so that will release a lot of real estate, people, and other resources for more productive use. This should dramatically improve the profitability of the bank. The  only question to ask is will the current employees of the mortgage company, the mutual fund and the Life Insurance companies be able to take the heat of the hard task master Aditya Puri ? We might see a lot of attrition – this augurs well for the profitability of the new bank.

The cost of funds for the bank is lower than that of Hdfc Ltd (the money from individuals as FD will be repaid with lower cost CASA funds. Again good news.

All this means Hdfc bank shareholders should rejoice, while the shareholders of Hdfc Ltd. should do well to sell some of the parent and buy that of the kid.

Now coming back to the questions:

Will Hdfc Ltd be merged with Hdfc bank? It is not a question of whether, it is a question of when.  Will it be 2014, 2018, or 2022? Nobody in the aam junta is likely to know, but I guess it will be much sooner than you think. So sooner rather than later.

What will be the ratio? Cost of funds for the bank is lower (thanks to fantastic bank branch expansion especially into the smaller towns), so the bank has to be favored more. Both the companies have very strong shareholders, so there will be a very fair valuation by a reputed company and the valuation merger will be fair to both the shareholders.

These companies are reputed and as and when they decide in the Board within 20 minutes the Exchanges and the Media will know about it. That is exactly the time that yours truly will have the answer. Sigh.



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  1. ‘All this means Hdfc bank shareholders should rejoice, while the shareholders of Hdfc Ltd. should do well to sell some of the parent and buy that of the kid.’
    it seems that my mutual fund thinks otherwise. they held parent instead.

  2. Bharat this is just a point of view. Over the last 3 months I am seeing the price movement moving in favor of MY ARGUMENT. I think I can be completely wrong too. However one thing is certain it will be very fair on both the shareholders. This is not because of honest management (that is true of course) but because of powerful shareholders.

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