Today's one of those rare days when the stock of HDFC Bank (HDB 2.91%) made a big move, and rightfully so. The Indian banking giant announced a megamerger today, which if completed could change the company's fortunes in terms of growth opportunities. HDFC Bank wants to merge with its parent, HDFC (which is listed in India), in an all-stock deal, after which HDFC will become a subsidiary of the bank.
This is a potential merger between the largest private bank and the largest housing-finance company (HDFC) in the world's second most-populous country. It's a huge deal, and it's no surprise that HDFC Bank shares rocketed Monday morning.
And this could be just the beginning of a bull run for HDFC Bank. It already has a clout like none other in India, and this merger, which is likely to be approved, will give it headway into a market with massive growth potential.
Image source: Getty Images.
To put some numbers to that, consider that HDFC Bank has more than 68 million customers and 6,342 branches across India as of this writing, with almost 50% of those branches in rural and semi-urban regions. HDFC Bank also has a big retail loan business, and sourced home loans for HDFC with focus on low-income and middle-income groups under the Indian government's affordable housing initiatives.
Industry experts peg the affordable housing market to have constituted almost 60% of the total housing finance market in India by value.
HDFC, meanwhile, itself approved its highest-ever retail loans ever in one year in 2021 in terms of value, up 30% from 2020, despite the COVID-19 restrictions. Just earlier this year, HDFC's chairman, Deepak Parekh, told the leading business daily Economic Times how he has "never been as optimistic about the housing sector" as today.
After the merger, therefore, HDFC Bank will become the largest mortgage lender, and it will be able to tap its existing base of 68 million customers to offer home loan products, as well as make the most of India's booming housing market.
The proposed merger alone is valued at nearly $60 billion, yet HDFC Bank stock is still nearly 15% off its 52-week high even after today's 8% surge as of 2 p.m. ET. I see solid upside potential in the bank stock in the long term.
