HDB Financial Services IPO - Should You Subscribe Or Not? DRChoksey Report

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HDB Financial Services IPO Deven Choksey Report

HDB Financial Services Ltd., a subsidiary of HDFC Bank's IPO is set to open for subscription on June 25 and the offer closes on June 27 . The company has fixed the price band in the range of Rs 700 to Rs 740 per share.

The Rs 12,500 crore IPO comprises of fresh issue of Rs 2,500 crore and Rs 10,000 crore through an offer for sale.

The allotment for the HDB Financial Services IPO is expected to be finalized on June 30.

The shares will be listed on both the National Stock Exchange and the BSE on July 02.

JM Financial Ltd., BNP Paribas. BofA Securities India Ltd. Goldman Sachs (India) Securities Pvt Ltd. HSBC Securities and Capital Market (India) Pvt Ltd. IIFL Capital Services Ltd., Jefferies India Private Ltd. Morgan Stanley India Company Private Ltd. Motilal Oswal Investment Advisors Ltd., Nomura Finance Advisory & Securities (India) Pvt Ltd. Nuvama Wealth Management Ltd., UBS securities India Pvt Ltdare the book-running lead managers for the public issue.

Objects of the Offer

Augmentation of Tier-I capital base to meet future capital requirements.

Outlook:

HDB Financial, is a subsidiary of HDFC Bank - largest private bank in India by assets as of March 31, 2025. Over the years, it has built an extensive network of 1,771 branches across 170 cities. With 70%+ of its branches located in Tier-4 towns and other rural areas, it has built a niche in serving underbanked and underpenetrated geographies, for establishing a well-diversified operations.

Further, it relies on digital channels such as WhatsApp, web portal and mobile application, along with a base of over 3,700+ telecallers and 8,800+ field resources to generate leads and manage collections effectively.

The company has been able to grow its AUM and Pre-Provisioning Operating Profit at a 23.7% and 12.9% CAGR over FY23-25, respectively, compared to the peer average of 25.3% AUM growth and 19.4% PPoP growth. Its PPoP growth lags the peer average group, due to its higher operating expenses, driven by large investments in digital channels and team to generate leads, for processing higher disbursements and managing collections effectively.

During its higher OpEx structure and higher credit cost of 2.1% in FY25, it maintained an attractive 2.0%+ ROA return profile. The Company in its initial issue is planning to raise Rs 25.0 billion by issuing fresh equity to augment its Tier-1 capital and to sustain higher AUM growth.

We expect that its AUM and disbursement will witness higher growth compared to FY25, led by higher urban and rural consumer demand driven by government’s intervention in reducing income tax rates, RBI’s efficient inflation management and expected cuts in GST rates for the overall consumption basket.

HDB’s initial issue is priced at 3.4x TTM P/B (considered equity raise for calculating TTM BV) compared to the peer average of 4.4x TTM P/B.

Also Read: HDB Financial Services IPO: What Does GMP Indicate?

We believe the issue is attractively priced considering its parentage, peer group ROA average and its growth potential. We assign a “Subscribe” rating to the initial issue of the HDB Financial Service.

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