Merger Report of HDFC-CBOP

Submitted to Submitted by

Prof.Padmavathi Atmakuri Ram Mohan

Merger Report of HDFC & CBOP

ACKNOWLEDGEMENT

Nothing can be gained or acquired without hard work which leads to success.
The success of my work is the amalgamation of my hard work, my knowledge and
pain.

I’m deeply grateful to my Prof Padmavathi madavan, who graciously spared her
time to share her views and whose unstinted support and cooperation enabled this
project to see the light of the day. We were thankful and immensely obliged for her
constant guidance and words of inspiration

I’m thankful to IT dep of IFIM Bschool who helped a lot in completion of project and
provided the wifi & computer lab.

Above all we have no words to express my gratitude to the almighty GOD who
blessed us the wisdom and enlightened me to complete this project.

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

Snap Shot of Merger

 The swap ratio of 1:29 for HDFC-CBOP merger turned out to be more favorable for HDFC
Bank than expected by the market
 The swap ratio was based on the recommendations made by joint valuers Dalal & Shah, a
chartered accounting firm, and Ernst & Young, a consulting firm.
 HDFC held 23.28 per cent in HDFC Bank at the end of December 31, 2007. HDFC will need
about Rs 3,900 crores to raise its shareholding after it falls to around 19 per cent after the
merger.
 The acquisition of Centurion Bank of Punjab (CBoP) - Rs 9,510 crore in the financial sector
in India. However, the merged entity would still be two-fifth the size of the country’s
second largest lender, ICICI Bank.
 The market cap to branch ratio of HDFC Bank is Rs.721m where the same for CBOP is Rs.
238m. Hence, HDFC Bank has been able to buy the franchisee of CBOP at almost one-third
of what the market is currently giving to its own franchisee.
 If HDFC Bank manages to improve the productivity of these branches to even half the
levels of HDFC Bank branches, the merger will become positive in longer term.
 The merger was EPS dilutive for HDFC Bank in the interim
 The profitability ratios of CBoP are quite low, this looked an expensive proposition for
HDFC in the short run
 Access to 394 branches of CBoP and an increased presence in southern and northern states
 170 of CBoP’s branches lie in the North, concentrated in the National Capital Region (NCR,
55), Punjab (78), Haryana (28); 150 of its branches are situated in the South, mainly in
Kerala (91).
 Greater access to the North (Punjab and Haryana) as well as the South (particularly Kerala),
thereby strengthening its presence in those regions.
 CBoP’s strong SME relationships will complement HDFC bias towards highly rated
corporates thus expanding HDFC’s base.
 The creation of India’s 7th largest bank, just behind public giants like Bank of Baroda, Bank
of India.
 Induction of a strong and capable management team with extensive industry experience
and proven capabilities.
 Due to an influx of 394 branches from CBoP, there will be a significant increase in the
number of branches for HDFC
 CBoP currently has a weaker asset profile with net NPAs of 1.6% as against 0.4% for HDFC
Bank. Going forward, HDFC Bank (combined entity) would aim to maintain its NPA profile
at these levels, which would require a charge of ~Rs2bn

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

SWOT Analysis of banking sector of India

STRENGTH

■ Indian banks have compared favorably on growth, asset quality and profitability with other
regional banks over the last few years. The banking index has grown at a compounded annual rate
of over 51 per cent since April 2001 as compared to a 27 per cent growth in the market index for
the same period.

■ Policy makers have made some notable changes in policy and regulation to help strengthen the
sector. These changes include strengthening prudential norms, enhancing the payments system and
integrating regulations between commercial and co-operative banks.

■ Bank lending has been a significant driver of GDP growth and employment.

■ Extensive reach: the vast networking & growing number of branches & ATMs. Indian banking
system has reached even to the remote corners of the country.

■ The government's regular policy for Indian bank since 1969 has paid rich dividends with the
nationalization of 14 major private banks of India.

■ In terms of quality of assets and capital adequacy, Indian banks are considered to have clean,
strong and transparent balance sheets relative to other banks in comparable economies in its region.

■ India has 88 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the
Government of India holding a stake)after merger of New Bank of India in Punjab National Bank in

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

1993, 29 private banks (these do not have government stake; they may be publicly listed and traded
on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches
and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks
hold over 75 percent of total assets of the banking industry, with the private and foreign banks
holding 18.2% and6.5% respectively.

■ Foreign banks will have the opportunity to own up to 74 per cent of Indian private sector banks
and 20 per cent of government owned banks.

WEAKNESS

■ PSBs need to fundamentally strengthen institutional skill levels especially in sales and marketing,
service operations, risk management and the overall organizational performance ethic & strengthen
human capital.

■ Old private sector banks also have the need to fundamentally strengthen skill levels.

■ The cost of intermediation remains high and bank penetration is limited to only a few customer
segments and geographies.

■ Structural weaknesses such as a fragmented industry structure, restrictions on capital availability

and deployment, lack of institutional support infrastructure, restrictive labour laws, weak corporate
governance and ineffective regulations beyond Scheduled Commercial Banks (SCBs), unless
industry utilities and service bureaus.

■ Refusal to dilute stake in PSU banks: The government has refused to dilute its stake in PSU banks
below 51% thus choking the headroom available to these banks for raining equity capital.

■ Impediments in sectoral reforms: Opposition from Left and resultant cautious approach from the
North Block in terms of approving merger of PSU banks may hamper their growth prospects in the
medium term.

OPPORTUNITY

■ The market is seeing discontinuous growth driven by new products and services that include
opportunities in credit cards, consumer finance and wealth management on the retail side, and in
fee-based income and investment banking on the wholesale banking side. These require new skills
in sales & marketing, credit and operations.

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

■ Banks will no longer enjoy windfall treasury gains that the decade-long secular decline in interest
rates provided. This will expose the weaker banks.

■ With increased interest in India, competition from foreign banks will only intensify.

■ Given the demographic shifts resulting from changes in age profile and household income,
consumers will increasingly demand enhanced institutional capabilities and service levels from
banks.

■ New private banks could reach the next level of their growth in the Indian banking sector by
continuing to innovate and develop differentiated business models to profitably serve segments like
the rural/low income and affluent/HNI segments; actively adopting acquisitions as a means to grow
and reaching the next level of performance in their service platforms. Attracting, developing and
retaining more leadership capacity

■ Foreign banks committed to making a play in India will need to adopt alternative approaches to
win the “race for the customer” and build a value-creating customer franchise in advance of
regulations potentially opening up post 2009. At the same time, they should stay in the game for
potential acquisition opportunities as and when they appear in the near term. Maintaining a
fundamentally long-term value-creation mindset.

■ Reaching in rural India for the private sector and foreign banks.

■ With the growth in the Indian economy expected to be strong for quite some time especially in its
services sector-the demand for banking services, especially retail banking, mortgages and
investment services are expected to be strong.

■ the Reserve Bank of India (RBI) has approved a proposal from the government to amend
the Banking Regulation Act to permit banks to trade in commodities and commodity derivatives.

■ Liberalization of ECB norms: The government also liberalized the ECB norms to permit
financial sector entities engaged in infrastructure funding to raise ECBs. This enabled banks and
financial institutions, which were earlier not permitted to raise such funds, explore this route for
raising cheaper funds in the overseas markets.

■ Hybrid capital: In an attempt to relieve banks of their capital crunch, the RBI has allowed them
to raise perpetual bonds and other hybrid capital securities to shore up their capital. If the new
instruments find takers, it would help PSU banks, left with little headroom for raising equity.
Significantly, FII and NRI investment limits in these securities have been fixed at 49%, compared
to 20% foreign equity holding allowed in PSU banks.

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

THREATS
■ Threat of stability of the system: failure of some weak banks has often threatened the stability of the
system.

■ Rise in inflation figures which would lead to increase in interest rates.

·
■ Increase in the number of foreign players would pose a threat to the PSB as well as the private players.

■ Increase in CRR rate

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

 Merger Report of HDFC & CBOP

PORTER’s 5 Force Model for INDIAN BANKING INDUSTRY

Barriers to entry
 Product
differentiation very
difficult
 Licensing
requirement

Bargaining power of Threat of competitors Bargaining power

Suppliers is very low  Large no of banks of consumer very
 Nature of suppliers  High market growth high
 Few alternatives  rate  Large no. of
 RBI rules and  Low switching costs alternatives
regulations  Undifferentiated  Low switching
 Suppliers are not  services costs
concentrated  High fixed cost  Undifferentiated
 forward integration  High exit barriers services
 Full information
about
 the market

Threat of Substitute
 Non banking financial
sector increasing
rapidly
 Deposits in posts
 Stock Market
 NBFC
 Mutual Fund

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

HDFC BANK AND CENTURION BANK OF PUNJAB

MERGER
About HDFC Bank
Promoted in 1995 by Housing Development Finance Corporation (HDFC), India's leading housing
finance company, HDFC Bank is one of India's premier banks providing a wide range of financial
products and services to its over 11 million customers across over three hundred cities using
multiple distribution channels including a pan-India network of branches, ATMs, phone banking,
net banking and mobile banking. Within a relatively short span of time, the bank has emerged as a
leading player in retail banking, wholesale banking, and treasury operations, its three principal
business segments.

The bank's competitive strength clearly lies in the use of technology and the ability to deliver
world-class service with rapid response time. Over the last 13 years, the bank has successfully
gained market share in its target customer franchises while maintaining healthy profitability and
asset quality.

As on December 31, 2007, the Bank had a network of 754 branches and 1,906 ATMs in 327 cities.

For the quarter ended December 31, 2007, the bank reported a net profit of Rs. 4.3 billion, up
45.2%, over the corresponding quarter of previous year. Total deposits were Rs. 993.9 billion, up
48.9% over the corresponding quarter of previous year. Total balance sheet size too grew by
46.7% to Rs.1,314.4 billion.

SWOT Analysis – HDFC

SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses,
Opportunities, and Threats involved in a project or in a business venture. It involves specifying the
objective of the business venture or project and identifying the internal and external factors that
are favorable and unfavorable to achieving that objective. The technique is credited to Albert
Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from
Fortune 500 companies.

STRENGTHS

1. HDFC is the strongest and most venerable play on Indian mortgages over the long term. The
management of the bank is termed to be one of the best in the country.
2. HDFC has differentiated itself from its peers with its diversified network and revamped
distribution strategy
3. HDFC has been highly proactive in passing on the cost and benefit to customers.

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

4. Besides the core business, HDFC’s insurance, AMC, banking, BPO, and real estate private equity
businesses are also growing at a rapid pace and the estimated value of its
investments/subsidiaries explains ~30% of HDFC’s market capitalization.
5. High degree of customer satisfaction.
6. Lower response time with efficient and effective service.
7. Dedicated workforce aiming at making a long-term career in the field.
8. Products have required accreditations.
9. Superior customer service vs. competitors
10. Large share of low-cost deposits, higher net interest margin
11. Better quality of assets, NPA of 0.4 per cent
12. Free float available, FIIs can buy its stock
13. Higher profitability

WEAKNESSES

1. High dependence on individual loans.

2. Major stake held by American financial groups which are under stress due to economic
slowdown.
3 .Customer service staff needs training.
4. Processes and systems, etc need to be better managed
5. Management cover insufficient.
6. Sectoral growth is constrained by low unemployment levels and competition for staff
7. Marginal international presence
8. No next line of leadership
9. Not very aggressive in M&A space, growing only organically
10. Possible takeover target

OPPURTUNITIES

1. Fast growing insurance business in the country.

2. Untapped rural markets.
3. Could extend to overseas broadly
4. Fast-track career development opportunities on an industry-wide basis.
5.An applied research centre to create opportunities for developing techniques to provide ad ded-
value services.
6. Unique partnership to create job opportunities for IFBI’s PGDBO students
7. HDFC bank automates business processes with Staff ware; HDFC Bank anticipates major cost
savings whilst maintaining high levels of customer service thanks to new enterprise software
agreement.
8. HDFC Bank plans to set up a non-banking finance company (NBFC) to undertake fund-based
activities.

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

9.In recent times, India has witnessed entry of many international banks like CITI Bank, YES
Bank etc which posses an external entrant threat to HDFC Bank – as this Banks are known for
their art of working and maintain high standards of customer service.
10. After showing a significant growth overall, India is able to attract many international
financial & banking institutes, which are known for their state of art working and keeping low
operation costs.

THREATS

1. Loss of market share to commercial banks and HFC’s

2. Higher than expected increase in funding cost
3. Risk of fraud and NPA accretion due increasing in interest rates and fall in property prices is
inherent to the mortgage business
4. Lack of infrastructure in rural areas could constrain investment.
5. High volume/low cost market is intensely competitive.
6. Very high competition prevailing in the industry
7. Extension overseas holds a lot of risk!
8. Threat from credit card collections dept.
9. Varying and In-Convenient ECS dates.
10. Unlike Government Banks, an account needs a minimum balance of Rs.10, 000

About Centurion Bank of Punjab

Centurion Bank of Punjab is one of the leading new generation private sector banks in India. The
bank serves individual consumers, small and medium businesses and large corporations with a full
range of financial products and services for investing, lending and advice on financial planning. The
bank offers its customers an array of wealth management products such as mutual funds, life and
general insurance and has established a leadership 'position'. The bank is also a strong player in
foreign exchange services, personal loans, mortgages and agricultural loans. Additionally the bank
offers a full suite of NRI banking products to overseas Indians.

On August 29, 2007, Lord Krishna Bank (LKB) merged with Centurion Bank of Punjab, post
obtaining all requisite statutory and regulatory approvals. This merger has further strengthened
the geographical reach of the Bank in major towns and cities across the country, especially in the
State of Kerala, in addition to its existing dominance in the northern part of the country.

Centurion Bank of Punjab now operates on a strong nationwide franchise of 394 branches and 452
ATMs in 180 locations across the country, supported by employee base of over 7,500 employees.
In addition to being listed on the major Indian stock exchanges, the Bank’s shares are also listed
on the Luxembourg Stock Exchange.

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

REASON FOR MERGER

The company was amongst the first to get a banking license, the first to do a merger in the private
sector with Times Bank in 1999, and now after the merger of Centurion Bank of Punjab, it was the
largest merger in the private sector banking space in India. HDFC Bank was looking for an
appropriate merger opportunity that would add scale, geography and experienced staff to its
franchise. This opportunity arose and the bank thought it is an attractive route to supplement
HDFC Bank’s organic growth. The bank believes that Centurion Bank of Punjab would be the right
fit in terms of culture, strategic intent and approach to business.

The HDFC Bank-CBoP merger is expected to be a win-win for both banks in terms of both asset size
and footprint. While CBoP is concentrated in the northern and southern parts of the country,
HDFC Bank is focused throughout India.

These are exciting times for the Indian banking industry. The proposed merger will position the
combined entity to significantly exploit opportunities in a market globally recognized as one of the
fastest growing. This is particularly bullish about the potential of business synergies and cultural fit
between the two organizations. The combined entity will be an even greater force in the market.

Over the last few years, Centurion Bank of Punjab has set benchmarks for growth. The bank on
that day has a large nationwide network, an extremely valuable franchise, 7,500 talented
employees, and strong leadership positions in the market place. It is believe that the merger with
HDFC Bank will create a world class bank in quality and scale and will set the stage to compete
with banks both locally as well on a global level.

MERGER DETAILS:

The merger between HDFC Bank and Centurion bank of Punjab has been finalized on 26 Feb.,
2008. The swap ratio for merger is around 29 shares of Re 1 of CBoP, an investor will get one share
of Rs 10 of HDFC Bank. In last two days, at the time of merger the share price of CBoP moved from
Rs 49.85 to Rs 56.40. However, it seems, investors of HDFC Bank did not like the development. The
share price of HDFC Bank on Thursday moved up from Rs 1,534.50 to Rs 1,543. But in next day, it
fell sharply to Rs 1,475. Prior to this, in August 2007, CBoP was merged with Lord Krishna bank.

Approved a swap ratio of 1:29 (one share of HDFC Bank for every 29 shares of Centurion Bank of
Punjab held), for the proposed merger of Centurion Bank of Punjab with HDFC Bank. The name of
the bank would remain as HDFC Bank.

The combined entity would have a nation-wide network of 1,148 branches, the largest among
private sector banks, A strong deposit base of around Rs. 120,000 crore and net advances of
around Rs. 85,000 crore. The balance-sheet size of the combined entity would be over Rs. 150,000
crore.

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

Before Merging of CBoP with HDFC bank, the CBoP has acquired Lord Krishna Bank ltd.
The details of the merger of Lord Krishna Bank with CBop is

The Reserve Bank of India has sanctioned the Scheme of Amalgamation of Lord Krishna Bank Ltd.
with Centurion Bank of Punjab Ltd. The Scheme has been sanctioned in exercise of the powers
contained in Sub-section (4) of Section 44A of the Banking Regulation Act, 1949. The Scheme will
come into force with effect from August 29, 2007. All the branches of Lord Krishna Bank Ltd. will
function as branches of Centurion Bank of Punjab Ltd. with effect from August 29, 2007.

The LKB-CBoP merger in the ratio 5:7 was approved by the AGMs of the respective banks in
September 2006. However, one of the shareholders Umeshkumar Pai had challenged the merger
and had sought an investigation into the affairs of LKB, while arguing that the decision was taken
without sufficient discussion and many shareholders were not permitted in the meeting hall.

The merger will add Rs 300 crore to CBoP’s balance sheet, which is around Rs 18,480 crore at
present, and another 112 branches to its current 279 branches. CBoP plans to add more than 200
branches by December 2007.

The all-stock merger deal of LKB with CBoP followed the acquisition of Bank of Punjab by
Centurion Bank, after which it was rechristened as CBoP.

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

3 years Financials of HDFC and CBOP before Merger

Balance Sheet of HDFC Bank

HDFC ------------------- in Rs. Cr. -------------------

Mar '05 Mar '06 Mar '07

12 mths 12 mths 12 mths

Capital and Liabilities:

Total Share Capital 309.88 313.14 319.39
Equity Share Capital 309.88 313.14 319.39
Share Application Money 0.43 0.07 0
Preference Share Capital 0 0 0
Reserves 4,209.97 4,986.39 6,113.76
Revaluation Reserves 0 0 0
Net Worth 4,520.28 5,299.60 6,433.15
Deposits 36,354.25 55,796.82 68,297.94
Borrowings 5,290.01 4,560.48 2,815.39
Total Debt 41,644.26 60,357.30 71,113.33
Other Liabilities & Provisions 5,264.46 7,849.49 13,689.13
Total Liabilities 51,429.00 73,506.39 91,235.61

Assets
Cash & Balances with RBI 2,650.13 3,306.61 5,182.48
Balance with Banks, Money at 1,823.87 3,612.39 3,971.40
Call
Advances 25,566.30 35,061.26 46,944.78
Investments 19,349.81 28,393.96 30,564.80
Gross Block 1,290.51 1,589.47 1,917.56
Accumulated Depreciation 582.19 734.39 950.89
Net Block 708.32 855.08 966.67
Capital Work In Progress 0 0 0
Other Assets 1,330.57 2,277.09 3,605.48
Total Assets 51,429.00 73,506.39 91,235.61

Contingent Liabilities 84,585.95 138,898.60 202,126.73

Bills for collection 5,342.70 5,239.26 7,211.88
Book Value (Rs) 145.86 169.24 201.42

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

P&L Account of HDFC Bank

(Rs. lacs) (Rs. lacs) (Rs. lacs)

Schedule Year ended Year ended 31-03-05 31-03-06 31-03S-07

I. INCOME
Interest earned 3,093,49 4,475,34 6,647,93
Other income 651,34 1,123,98 1,516,23
Total 3,744,83 5,599,32 8,164,16
II. EXPENDITURE
Interest expended 1,315,56 1,929,50 3,179,45
Operating expenses 1,085,40 1,691,09 2,420,80
Provisions and contingencies [includes provision 678,31 1,107,95 1,422,46
for income tax and fringe benefit tax of
Rs. 382,73 lacs (previous year: Rs. 313,38 lacs)]
Total 3,079,27 4,728,54 7,022,71
III. PROFIT
Net profit for the year 665,56 870,78 1,141,45
Profit brought forward 405,32 602,34 1,455,02
Transfer from investment fluctuation reserve - 484,19
Total 1,070,88 1,957,31 2,596,47
IV. APPROPRIATIONS
Transfer to Statutory Reserve 166,39 217,70 285,36
Proposed dividend 140,07 172,23 223,57
Tax (including cess) on dividend 19,64 24,16 38,00
Cess on dividend pertaining to previous year paid
during the year 26 - 35
Transfer to General Reserve 66,56 87,08 114,14
Transfer to Capital Reserve 62 1,12 4
Transfer to investment fluctuation reserve 75,00 - 2,98
Balance carried over to Balance Sheet 602,34 1,455,02 1,932,03
Total 1,070,88 1,957,31 2,596,47
V. EARNINGS PER EQUITY SHARE
(Face value Rs. 10/- per share) 18 Rs. Rs.
Basic 22.92 27.92 36.29
Diluted 21.64 26.33 36.06

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

Centurion Bank of Punjab Financials

Balance Sheet in Rs. Cr. Mar '05 Mar '06 Mar '07

12 mths 12 mths 12 mths

Capital and Liabilities:

Total Share Capital 101.32 140.83 156.69
Equity Share Capital 101.32 140.83 156.69
Share Application Money 0 0 0
Preference Share Capital 0 0 0
Reserves 488.72 790.37 1,239.41
Revaluation Reserves 0 0 0
Net Worth 590.04 931.2 1,396.10
Deposits 3,530.38 9,399.64 14,863.72
Borrowings 43.75 51.57 930.89
Total Debt 3,574.13 9,451.21 15,794.61
Other Liabilities & Provisions 447.51 947.78 1,292.07
Total Liabilities 4,611.68 11,330.19 18,482.78
Assets
Cash & Balances with RBI 331.9 556.52 1,079.14
Balance with Banks, Money at Call 131.04 489.52 410.19
Advances 2,193.95 6,533.44 11,221.35
Investments 1,479.64 2,922.83 4,614.96
Gross Block 670.4 887.13 930.55
Accumulated Depreciation 533.97 577.57 593.67
Net Block 136.43 309.56 336.88
Capital Work In Progress 0 1.74 0.43
Other Assets 338.72 516.58 819.83
Total Assets 4,611.68 11,330.19 18,482.78

Contingent Liabilities 1,394.82 4,475.78 5,141.44

Bills for collection 458.28 820.04 1,680.34
Book Value (Rs) 5.82 6.61 8.91

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

Centurion Bank of Punjab

Profit & Loss account in Rs. Cr.

Mar '05 Mar '06 Mar '07

12 mths 12 mths 12 mths

Income
Interest Earned 346.09 803.2 1,268.53
Other Income 72.2 311.37 440.66
Total Income 418.29 1,114.57 1,709.19
Expenditure
Interest expended 168.21 404.43 698.95
Employee Cost 42.7 139.27 221.31
Selling and Admin Expenses 126.11 282.77 297.44
Depreciation 29.73 51.48 56.97
Miscellaneous Expenses 21.39 114.14 313.14
Preoperative Exp Capitalised 0 0 0
Operating Expenses 226.81 577.71 746.06
Provisions & Contingencies -6.88 9.95 142.8
Total Expenses 388.14 992.09 1,587.81

Net Profit for the Year 30.15 122.48 121.38

Extraordionary Items 2.7 0 0
Profit brought forward -131.39 -121.39 73.72
Total -98.54 1.09 195.1
Preference Dividend 0 0 0
Equity Dividend 0 0 0
Corporate Dividend Tax 0 0 0
Per share data (annualised)
Earning Per Share (Rs) 0.3 0.87 0.77
Equity Dividend (%) 0 0 0
Book Value (Rs) 5.82 6.61 8.91
Appropriations
Transfer to Statutory Reserves 15.11 -107.31 30.35
Transfer to Other Reserves -121.39 0 0
Proposed Dividend/Transfer to Govt 0 0 0
Balance c/f to Balance Sheet -121.39 73.72 164.75
Total -227.67 -33.59 195.1

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

Pre Merger Analysis of HDFC and CBOP

Ratio analysis

EPS Mar '05 Mar '06 Mar '07

HDFC 21.47832 27.81 35.74
CBoP 0.24 0.62 0.77

EPS
30

20
EPS

HDFC
10 CBoP
0
Mar '05 Mar '06 Mar '07

In HDFC there is around 30% growth in EPS on year on year basis but Coming to CBOP bank , its
Earning is very less not even 1 rupee.

DPS Mar '05 Mar '06 Mar '07

HDFC 4.5 5.5 7
CBoP - - -

Dividend payout Ratio Mar '05 Mar '06 Mar '07

HDFC 20.95136 19.77706 19.5859
CBoP 0 0 0

HDFC is paying dividends to their share holders every year, but in the case of CBoP it is not paying
any dividends to their share holders.

Profitability Ratios:
Operating margin (%) Mar '05 Mar '06 Mar '07
HDFC 24.65 29.56 33.15
CBoP 11.02 10.85 15.69

The operating margin of HDFC gradually increases Y-to-Y. The operating margin of CBoP is
moderate with increase and decrease.

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

Gross profit margin (%) Mar '05 Mar '06 Mar '07
HDFC 21.45 26.35 30.5
CBoP 3.78 5.92 12.23

Net profit margin (%) Mar '05 Mar '06 Mar '07
HDFC 14.24 15.55 13.57
CBoP 5.96 8.28 7.25

ROCE Mar '05 Mar '06 Mar '07

HDFC 4.02 4.18 5.02
CBoP 5.11 5.36 4.99

Gross Profit and Net Profit Margins of Both are increasing year on year by % of range may be
different due its scale of Business. Coming to Most important Ratio ROCE for HDFC there is Steady
Growth but Coming to CBOP its different story.

Liquidity Ratios:

Current ratio Mar '05 Mar '06 Mar '07

HDFC 0.28 0.29 0.26
CBoP 0.75 0.54 0.63

HDFC maintaining its current assets and current liabilities almost in constant way. In the case of
CBoP the current ratio is high in 2005 compare to preceding years means it has high liquidity in
2005, in 2005 it goes down and again in 2007 it moves up.

Quick ratio Mar '05 Mar '06 Mar '07

HDFC 4.89 5.18 4.07
CBoP 6.4 8.03 10.15

The high liquidity position of HDFC is less compare to High Liquidity position of CBoP. This shows
CBoP may have more cash and cash equivalents compare to their current liabilities.

Total debt/equity Mar '05 Mar '06 Mar '07

HDFC 10.32 10.53 10.62
CBoP 5.98 10.09 10.65

The debt portion in bank is almost 10.5 times to equity portion. It shows HDFC has more debts. In
CBoP the debt portion increased from year to year. Compare CBoP, HDFC doing good.

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

On the net interest margin front, HDFC Bank has a net interest margin of 4.3% while CBOP has an
NIM of 3.6%. The current and savings account (CASA) stands at 50.9% and 24.5% for HDFC Bank
and CBOP, respectively.

Talking about the NPAs, HDFC Bank has a very low NPA of 0.4% as against 1.69% for CBoP.

The capital adequacy for HDFC Bank stands at 13.8% as against 11.5% for CBoP. Analysts say the
merger will create a strong banking entity.

EPS Analysis before Merger

 The earnings of HDFC bank in 2007is rs11414500000

 The earnings of CBoP in 2007 is 1213800000

 Number of shares of HDFC bank in 2007 is 319389608

 Number of shares of CBoP in 2007 is1698989540

 EPS of HDFC Bank in 2007 is rs 35.74 per share

 EPS of CBoP in 2007 is rs 0.72 per share

 The swap ratio for the merger is 1 share of HDFC bank for every 29 shares held by CBoP

 Exchange Ratio=1 share of HDFC/29 shares of CBoP=0.03448

 The total number of shares in the merged entity=319389608+(0.03448*1698989540)

=377975454 shares

 EPS12=(11414500000+1213800000)/ 377975454=33.41

HDFC Bank EPS CBoP EPS

Pre Merger 35.74 0.72
Post Merger 33.41 1.15

From the EPS analysis we can say that the target company CBoP gains and the acquiring company HDFC
losses. So there may be some synergy loss for the HDFC bank. In pre merger the EPS of CBoP is 0.72. After
Merger the EPS raise to 1.15 that is almost 160% for the Pre merger EPS. In pre merger the HDFC EPS is
35.74 per share. After merger the EPS for HDFC is falls to 33.41 per share. That’s why the share holders of
the HDFC bank do not have the interest for merging of CBoP in HDFC bank. The share holders of CBoP were
happier for this merger. Because of this merger proposal the share value of the CBoP has increased on that
day and the share price of the HDFC Bank has decreased.

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

3 years Financials of HDFC and CBOP after Merger

POST MERGER BALANCE SHEET

B/s of HDFC ------------------- in Rs. Cr. -------------------
Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths

Capital and Liabilities:

Total Share Capital 354.43 425.38 457.74
Equity Share Capital 354.43 425.38 457.74
Share Application Money 0 400.92 0
Preference Share Capital 0 0 0
Reserves 11,142.80 14,226.43 21,064.75
Revaluation Reserves 0 0 0
Net Worth 11,497.23 15,052.73 21,522.49
Deposits 100,768.60 142,811.58 167,404.44
Borrowings 4,478.86 2,685.84 12,915.69
Total Debt 105,247.46 145,497.42 180,320.13
Other Liabilities & Provisions 16,431.91 22,720.62 20,615.94
Total Liabilities 133,176.60 183,270.77 222,458.56
Assets
Cash & Balances with RBI 12,553.18 13,527.21 15,483.28
Balance with Banks, Money at
Call 2,225.16 3,979.41 14,459.11
Advances 63,426.90 98,883.05 125,830.59
Investments 49,393.54 58,817.55 58,607.62
Gross Block 2,386.99 3,956.63 4,707.97
Accumulated Depreciation 1,211.86 2,249.90 2,585.16
Net Block 1,175.13 1,706.73 2,122.81

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

Capital Work In Progress 0 0 0

Other Assets 4,402.69 6,356.83 5,955.15
Total Assets 133,176.60 183,270.78 222,458.56

Contingent Liabilities 582,835.94 396,594.31 466,236.24

Bills for collection 17,092.85 17,939.62 20,940.13
Book Value (Rs) 324.38 344.44 470.19

P&L Account of HDFC POST MERGER

HDFC
Particulars 31-Mar-08 31-Mar-09 31-Mar-10
I. INCOME
Interest earned 1011500 1,633,226 1,617,290
Other income 228315 329,060 380,761
Total 1239815 1,962,286 1,998,051
II. EXPENDITURE
Interest expended 488712 891,110 778,630
Operating expenses 374562 553,281 576,448
Provisions and contingencies [includes provision 217523 293,402 348,103
for income tax and fringe benefit tax of
Rs. 382,73 lacs (previous year: Rs. 313,38 lacs)]
Total 1080797 1,737,793 1,703,181
III. PROFIT
Net profit for the year 159018 224,494 294,870
Profit brought forward 193203 257,463 345,557
Transfer from investment fluctuation reserve
Total 352221 481,957 640,427
IV. APPROPRIATIONS
Transfer to Statutory Reserve 39755 56,123 73,718
Proposed dividend 30127 42,538 54,929
Tax (including cess) on dividend 5120 7,229 9,123
Cess on dividend pertaining to previous year paid
during the year 6 59 93
Transfer to General Reserve 15902 22,449 29,487
Transfer to Capital Reserve - 9,387 19,946
Transfer to investment fluctuation reserve 3850 -1,386 -149
Balance carried over to Balance Sheet 257461 345,557 453,279
Total 352221 481,957 640,427
V. EARNINGS PER EQUITY SHARE
(Face value Rs. 10/- per share) 18 Rs. Rs.

Atmakuri Ram Mohan, IFIM Bschool, Bangalore

Merger Report of HDFC & CBOP

Basic 46.22 52.85 67.56

Diluted 45.59 52.59 66.87

Post Merger Key Ratios

Mar ' 08 Mar ' 09 Mar ‘10
EPS 44.87 52.77 64.42
DPS 8.5 10 12
Operating margin (%) 30.78 19.87 24.36
Gross profit margin (%) 28.58 18.05 22.39
Net profit margin (%) 12.82 11.35 14.76
ROCE 5.20 5.96 4.96

Conclusion
Post Merger results are satisfactory but merger is took in Long term prospective, Following are
few more benefits to HDFC

 Access to 394 branches of CBoP and an increased presence in southern and northern states
 170 of CBoP’s branches lie in the North, concentrated in the National Capital Region (NCR,
55), Punjab (78), Haryana (28); 150 of its branches are situated in the South, mainly in
Kerala (91).
 Greater access to the North (Punjab and Haryana) as well as the South (particularly Kerala),
thereby strengthening its presence in those regions.
 CBoP’s strong SME relationships will complement HDFC bias towards highly rated
corporates thus expanding HDFC’s base.
 The creation of India’s 7th largest bank, just behind public giants like Bank of Baroda, Bank
of India.
 Induction of a strong and capable management team with extensive industry experience
and proven capabilities.
 Due to an influx of 394 branches from CBoP, there will be a significant increase in the
number of branches for HDFC.

Atmakuri Ram Mohan, IFIM Bschool, Bangalore