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What does HDFC Bank + Centurion deal mean to you ?

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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