What does HDFC Bank + Centurion deal mean to you ?
Monday, February 25, 2008
This transaction is biased toward the strategic; scale - branch (45%+) and assets (19%+), a clear number two positioning in the market (50% larger than Axis), widening its geographic segment /customer spread (deep penetration in West and South India, more consumer credit and SME), and an enhanced platform to support its relatively increased growth momentum. Acquisition provides growth (8-12 months), branches (45% - but lower quality) and deeper market positioning - but is not transformational.Swap ratio not yet announced, but on market pricing - appears expensive. Expect 6-7% earnings dilution. HDFC Bank paying high price, significant premium to its own high valuations, expensive on branch matrix too.
Centurion Bank of Punjab Shareholders are the winners:
CBOP facing fundamental pressures - of scale, franchise and profitability. Asset quality strain in key loan segments. Little bogged down by recent LKB acquisition.
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