Hdfc Bank Wacc Analysis

DeVry University

Keller Graduate School of Management

Pomona, California

wacc ANALYSIS

By

Submitted in Partial Fulfillment of the Course Requirements for

Applied Managerial Statistics

FIN 515 64235

THIERNO FALL

 December 9, 2015

CENTURION BANK OF PUNJAB (CBoP) – The Target

Centurion Bank of Punjab is one of the leading private sector banks in India. Centurion Bank of Punjab bank serves individual consumers, small and medium enterprises and large corporations with a wide range of financial products and services like investing, lending and advice on financial planning. The bank offers its customers different wealth management products like mutual funds, life and general insurance. Along with these the bank also offers services like foreign exchange services, personal loans, mortgages, agricultural loans and a full suite of NRI banking products to overseas Indians.

Centurion bank was the fourth largest private sector bank, but its balance sheet is modest and small when compared to the other major players like ICICI, HDFC and UTI bank, Centurion bank had high fixed operating costs as it leveraged its profits to asset growth. Acquisition of Bank of Punjab helped Centurion bank to expand its consumer base along with its balance sheet.

HDFC BANK – The Acquirer

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an "in principle" approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of RBI"s liberalization of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of "HDFC Bank Limited", with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. [2]

On 23 May 2008, HDFC Bank acquired Centurion Bank of Punjab increasing its branches to more than 1,000 and its balance sheet to more than Rs. 1,63,000 crore. The shareholders of Centurion bank of Punjab received 1 share of HDFC bank for every 29 shares of Centurion bank of Punjab.

M&A Analytics on HDFC Bank returns vs Nifty Returns

Steps involved        

• Take adjusted daily closing price of HDFC stock 200 days before the announcement of the merger and 50 days after the announcement of the merger and calculate the daily returns of stock and market returns
• Find the regression equation to find the relationship between stock return and market return. This gives slope and intercept which can be used to find the abnormal return.
• Expected return is used by finding the formula (yi=mxi+c) where c=intercept, m=slope, xi=stock return for ith day.

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