HDFC Bank To See Little Impact From HDB Financial Listing, Says Macquarie As It Maintains 'Outperform'

HDFC Bank will only see a little impact from the intended listing of HDB Financial Services, according to Macquarie, which has maintained an 'outperform' rating for the parent lender as it sees a potential for ROA (return on asset) improvement.

Assuming an issue price of Rs 1,240 (per the unlisted market), the pre-tax gain for HDFC Bank could be Rs 9,600 crore, Macquarie said while noting its current value per share for HDB Financial Services in HDFC Bank SOTP stands at Rs 43 (valuation at 2x FY26F P/B). "However, assuming HDB gets listed at Rs 800-Rs1,240 and factoring in a 20% holdco discount, it implies a 1%-3% impact on current market price of HDFCB," it said. "The impact is small as current contribution of HDBFS to HDFCB SOTP is just 2%."

Macquarie said that HDB is a leading upper layer NBFC with a diverse AUM mix, predominantly focused on retail and SME lending. Its AUM stands at Rs 1 lakh crore (1HFY25).

The two largest loan portfolios -- vehicle finance and loans against property (LAP) -- form 70% of its loan book, it noted and said ROA was 2.6% in the first half of fiscal 2025, down from 3% in FY24, primarily attributable to higher credit costs due to stress in the unsecured book (29% mix), a trend consistent across peers.

"Despite this, its current valuation in the unlisted market implies a 4.6 times FY26F P/B (post issue) multiple, which is higher than peers given growth and ROA contours," it said.

Meanwhile, draft RBI circular on similar lines of business creates overhang for HDB. "Assuming the draft RBI circular on the overlap of similar businesses goes through, there could either be a reduction of HDFC Bank's stake to 20%; a merger with HDFCB; or a segregation of products between both entities - any one of which would likely cause a great deal of uncertainty and could affect valuation multiples."

The brokerage also noted that its peers, despite delivering higher ROEs and growth, trade at lower multiples. Players like Bajaj Finance, that has the potential to deliver 4% ROA and strong growth (34% in FY24E), still trade at 3.8x FY26E P/BV and players like Shriram, that has the potential to deliver 3% ROA, still trades at a discount.

"At a price of Rs 800, HDBFS would trade at 3.0 times P/BV (price to book value), representing a 30% discount to BAF," it said.

On the downside, along with RBI's draft circular, the reduction of its (HDFC Bank) stake would result in a loss of controlling interest, which could impact HDBFS's credit ratings and increase its funding costs. "Further, bank borrowings (35% of mix) of HDBFS could be recalled or repriced if the promoter's stake (i.e., HDFC Bank) falls below 51%," it said.

The brokerage, however, is positive on HDFC Bank and said it is a buy idea given the potential for ROA improvement driven by margin expansion through improving product mix and a declining credit/deposit ratio; and the potential to deliver relatively lower credit costs given best-in-class underwriting standards. It has a target price of Rs 1,900 for the stock, implying a 10.9% upside.