HDB Financial Shares Bags 'Neutral' Rating As Motilal Oswal Initiates Coverage

NDTV Profit’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer NDTV Profit’s subscribers an opportunity to expand their understanding of companies, sectors and the economy.

Motilal Oswal Report

We initiate coverage on HDB Financial Services Ltd. with a Neutral rating and a target price of Rs 860 (premised on 2.7x Sep’27E P/book value). With valuations largely factoring in medium-term growth potential, we would look for clearer evidence of stronger execution on loan growth, ability to better navigate industry/product cycles, and structural (not just cyclical) improvement in return ratios.

HDB Financials offers a play on India’s high-growth, underpenetrated retail lending market. With an AUM of ~Rs 1.1 trillion and ~20 million customers, the company has built a granular, largely secured loan portfolio (~73% secured) and demonstrated credit discipline. With strong governance, in-house collections, and a differentiated sourcing model, HDB has the foundations for sustainable value creation.

At 2.7x FY27E P/BV, HDB offers exposure to a retail-heavy NBFC with a long runway for growth. As operating leverage kicks in and the cut in policy repo rates brings down the borrowing costs, we expect margin expansion and a gradual RoE improvement.

Key risks:

1. HDB’s focus on low- to middle-income and self-employed segments exposes it to higher credit sensitivity during economic slowdowns, despite its secured portfolio mix;

2. execution risk remains in translating scale into sustained profitability, as operating efficiency metrics currently lag peers;

3. rising competition in semi-urban and rural lending, potential yield compression, and any dilution of parent linkage benefits (e.g., in raising liabilities) could also impact margins; and

4. the RBI’s draft circular issued in Oct’24 may require HDFC Bank to reduce its stake in HDB to ~20%, potentially altering the ownership structure.

Click on the attachment to read the full report:

DISCLAIMER

This report is authored by an external party. NDTV Profit does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of NDTV Profit.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.