HDFC Bank: When the largest private lender made the decision to sell its entire stake in HDFC Education through the Swiss challenge method after careful consideration and in an effort to preserve transparency in the proposed divestment, shares of HDFC Bank Ltd. became the subject of attention on Monday morning. With regard to the aforementioned Swiss challenge process, HDFC Bank announced that it has signed a legally binding term sheet with a party that expresses interest in the process. The offer made in that term sheet will act as the base bid or anchor to solicit counteroffers from other parties.
In the first month of 2024, HDFC Bank shares have dropped 15%, after declining 10% in the previous month. April 20 is when the bank would be releasing its results for the March quarter.
According to a BSE filing, HDFC Bank stated that it would determine the buyer based on the outcome of the Swiss challenge procedure. The buyer and HDFCÂ will then sign official documents for the intended transaction.
Given the requirements of the procedure to be followed in order to complete the proposed transaction, the information that is currently required to be disclosed in accordance with Regulation 30 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, in conjunction with the circulars issued thereunder, is disclosed here. After signing such definitive documentation, HDFC Bank stated, “details of the definitive documentation for the Proposed Transaction that must be disclosed in accordance with the aforementioned regulations shall be submitted.”
For a period of two years following the effective date of the composite scheme of amalgamation for the amalgamation of HDFC Investments Limited and HDFC Holdings Limited, wholly owned subsidiaries of HDFC Limited, with and into HDFC Limited and HDFC Limited with and into HDFC Bank, the Reserve Bank of India (RBI) has allowed the private bank to maintain its stake of the former Housing Development Finance Corporation (HDFC) in HDFC Education, which is engaged in providing services to three education schools.
Nomura India recently reported that institutional investors it engaged with in Singapore and Hong Kong expressed confidence that HDFC Bank’s share price had likely weathered the worst of its challenges. The majority of investors appeared content with the prospect of HDFC achieving low-double-digit loan growth in the foreseeable future, given the bank’s intentions to progressively reduce its loan-to-deposit ratio, which stood at 110 percent as of the third quarter of FY24.
The main focus of the investors’ argument is that as the funding mix improves, RoA should also be improving gradually. We agree that HDFC Bank stock may have bottomed (we have a Neutral rating with a target price of Rs 1,625), but we do not see a compelling case for meaningful upside given the moderation of loan growth, which we believe should continue over the medium term. Despite this, HDFC Bank stock is still not our preferred choice in the sector, according to Nomura India.
Disclaimer: Not intended as investment advice, Businessuncover’s stock market news is provided for informational purposes only. It is advised that before making any investing decisions, readers speak with a licensed financial advisor.
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