HDFC Bank Stock Performance Post-Merger in 2025: A Transformative Journey

HDFC Bank Stock Performance Post-Merger in 2025 The merger of HDFC Bank with its parent company, Housing Development Finance Corporation (HDFC) Ltd., effective July 1, 2023, marked a historic milestone in India’s financial sector. This $40 billion all-stock merger created one of the world’s largest banks by market capitalization, positioning HDFC Bank as a financial services behemoth with a balance sheet of over ₹22 lakh crore. As of June 2025, nearly two years post-merger, this article analyzes HDFC Bank’s stock performance, the challenges and opportunities arising from the merger, and the outlook for investors, drawing on recent financial data and market sentiment.

Stock Performance Overview

As of June 26, 2025, HDFC Bank’s share price stood at ₹2,021.8 on both NSE and BSE, reflecting a 1.46% increase from the previous close of ₹1,980.20. The stock has delivered a one-year return of +14.58% and a five-year return of +90.61%, outperforming the Sensex (+7.79%) and Nifty Bank index (+12.12%) over the past year. The stock hit a 52-week high of ₹1,996.3 on June 6, 2025, and a 52-week low of ₹1,552 on June 11, 2024, indicating moderate volatility (beta of 0.98). The bank’s market capitalization reached ₹15,40,522.19 crore, making it India’s third-largest company and the world’s tenth-largest bank by market cap as of May 2024.

However, the journey has not been without turbulence. The stock experienced a sharp 15% decline in January 2024 following Q3 FY24 results, driven by concerns over lending margins and sluggish deposit growth. Despite this, the stock has shown resilience, recovering to trade at ₹2,009.05 by June 26, 2025, supported by positive analyst sentiment and robust financial fundamentals.

Financial Performance Post-Merger

For the fiscal year ending March 31, 2025, HDFC Bank reported a consolidated total revenue of ₹3,46,150 crore and a profit after tax (PAT) of ₹70,790 crore, with a return on equity (ROE) of 16.88%. In Q4 FY25, standalone net profit rose 6.68% to ₹17,616.14 crore, though total income remained flat at ₹89,487.99 crore compared to Q4 FY24. The bank’s price-to-earnings (P/E) ratio was 19.70 (TTM as of June 25, 2025), higher than the sector P/E of 9.04, and its price-to-book (P/B) ratio was 2.5, reflecting a premium valuation but a discount compared to its historical 5-year average P/B of 3.5.

The merger significantly expanded HDFC Bank’s balance sheet to ₹32 lakh crore, second only to the State Bank of India (₹55 lakh crore). The bank’s loan book grew to ₹22.45 lakh crore, with a 15% market share in banking sector advances and 37% in private sector banks’ advances as of FY24. However, loan growth slowed to 7% in Q2 FY24, reflecting merger-related integration challenges, while deposit growth was stronger at 15%.

Challenges Post-Merger

The merger brought several challenges that impacted stock performance:

  1. Margin Compression: Net interest margins (NIMs) contracted to 3.4% in Q2 FY24 due to high-cost borrowings inherited from HDFC Ltd., which increased from 8% to 21% of total liabilities post-merger. Analysts noted that the normalization of NIMs to pre-merger levels (4.1%) could take several quarters due to the long-tenor nature of these borrowings and tight liquidity conditions. The incremental cash reserve ratio (ICRR) also temporarily impacted margins, though its withdrawal in Q3 FY24 provided some relief.
  2. Deposit Growth and Liquidity: HDFC Bank faced challenges in deposit mobilization, with a loan-to-deposit ratio (LDR) exceeding 100% and a liquidity coverage ratio (LCR) dropping to 110%. This led to concerns about the bank’s ability to sustain credit growth without compromising margins. Analysts highlighted that deposit growth lagged behind guidance, prompting a cautious outlook in the near term.
  3. Asset Quality Concerns: The merger slightly impacted asset quality, with the gross non-performing loan (NPL) ratio increasing by 10 basis points and the net NPL ratio by 20 basis points in Q2 FY24, primarily due to HDFC Ltd.’s real estate portfolio. However, HDFC Bank maintained best-in-class asset quality metrics compared to peers, supported by a strong capital adequacy ratio of 19.6% as of March 31, 2025.
  4. Integration Challenges: The integration of HDFC Ltd.’s 4,000 employees and systems into HDFC Bank’s 1.7 lakh-strong workforce posed operational hurdles. Regulatory requirements, such as maintaining cash reserve ratio (CRR) and statutory liquidity ratio (SLR), increased the cost of capital, potentially impacting profitability by 50-100 basis points.
  5. Market Sentiment and External Factors: In June 2025, negative sentiment arose from HDFC Bank’s removal from the Odisha government’s empanelled banks list due to poor performance in government schemes, alongside legal issues involving the CEO and the resignation of the CHRO. These events temporarily pressured the stock price.

Opportunities and Synergies

Despite these challenges, the merger has unlocked significant growth opportunities:

  1. Expanded Mortgage Portfolio: The merger increased HDFC Bank’s exposure to mortgages from 11% to 33%, providing a stable, long-tenor asset base. The bank can now offer home loans through its extensive network of 9,455 branches and 21,139 ATMs across 4,150 cities/towns, tapping into its 70 million customer base, of which only 2% previously accessed home loans from HDFC Ltd.
  2. Cross-Selling Potential: The merger enables cross-selling of banking products such as cash management, trade finance, and salary accounts to real estate and corporate clients. This is particularly significant for the bank’s wholesale banking segment, which can leverage relationships with top corporates and infrastructure projects due to the increased capital base.
  3. Diversified Revenue Streams: The bank’s subsidiaries, including HDFC Securities, HDB Financial Services, HDFC Asset Management, and HDFC ERGO General Insurance, enhance revenue diversification. The upcoming IPO of HDB Financial Services is expected to add ₹73–100 per share to HDFC Bank’s fair value, with the bank retaining a 70–74% stake valued at ₹45,880–66,600 crore.
  4. Global Recognition and Institutional Investment: With a market cap of $157 billion post-merger, HDFC Bank ranks among the top 10 global banks, attracting institutional investors and ETFs. Its 15% weightage in the Nifty 50 index ensures strong passive fund inflows, despite initial selling pressure from mutual funds complying with SEBI’s 10% single-stock exposure cap.

Analyst Sentiment and Price Targets

Analyst sentiment remains overwhelmingly positive, with 92.68% of 41 analysts recommending a “Buy” rating as of May/June 2025, with an average target price of ₹2,182.02, implying a 7.9% upside from the current price of ₹2,021.8. Notable targets include:

  • Morgan Stanley: “Overweight” with a target of ₹2,110, citing accelerated loan growth (17–18%) and merger synergies.
  • Bernstein: “Outperform” with a target of ₹2,300, expecting a return on assets (RoA) of 1.9–2.0% by FY25.
  • JM Financial: “Buy” with a target of ₹2,010, emphasizing long-term growth potential despite near-term margin pressures.
  • Nuvama: “Hold” with a revised target of ₹1,730, reflecting concerns over deposit growth and loan moderation.

However, some brokerages, such as Antique Stock Broking and Equirus Securities, trimmed targets to ₹2,000 and ₹1,900, respectively, citing merger-related challenges and macroeconomic correlations impacting a larger balance sheet.

Investor Considerations

HDFC Bank’s stock presents a compelling long-term investment opportunity due to its market leadership, robust financials, and merger-driven synergies. However, investors should consider the following:

  • Valuation: Trading at 2.5x FY24 P/B and 19.7x TTM P/E, the stock is at a discount to its historical averages (3.5x P/B, 20x P/E), making it attractive for long-term investors. However, its premium P/E compared to the sector (9.04x) warrants caution.
  • Near-Term Headwinds: Margin compression, deposit growth challenges, and integration costs may cap stock price gains over the next 1–2 years. Analysts estimate a 4–5-year period for the bank to restore pre-merger ROE and NIM levels.
  • Risks: Ongoing merger integration, competitive pressures, and macroeconomic factors like liquidity tightening could impact performance. Legal and regulatory issues, such as the Mehta family’s complaints against the CEO, may create short-term volatility.
  • Growth Triggers: Over a 3–4-year horizon, the bank’s expanded mortgage portfolio, cross-selling opportunities, and subsidiary contributions are expected to drive earnings growth at a 15% CAGR, as projected by Kotak Institutional Equities.

Conclusion

HDFC Bank’s stock performance in 2025 reflects a transformative yet challenging phase post-merger. While near-term headwinds like margin compression and deposit growth concerns have tempered investor enthusiasm, the bank’s robust fundamentals, market leadership, and synergy-driven opportunities position it for strong long-term growth. Investors with a 3–5-year horizon can consider accumulating positions at current valuations, given the stock’s discount to historical averages and analyst optimism. However, caution is advised due to integration risks and macroeconomic uncertainties. As HDFC Bank navigates this consolidation phase, its ability to execute on synergies and restore pre-merger financial metrics will be critical to sustaining its status as a top investment choice in India’s banking sector.

Sources:

  • Business Today, March 28, 2024
  • Moneycontrol, June 24, 2025
  • Screener, June 20, 2025
  • INDMoney, June 19, 2025
  • Tickertape, April 11, 2025
  • LiveMint, June 20, 2025
  • The Hindu, January 25, 2024
  • X posts by @sandeepkjadhav, @deepakshenoy, @gurjota

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