HDB Financial Services has received a 'buy' rating from Emkay Global Financial Services, with a target price of Rs 900, representing a 22% upside. Emkay's positive outlook is based on HDB Financial's diversified and granular lending franchise, which serves over 19 million customers across India.
Emkay highlighted the firm's focus on direct sourcing, with approximately 82% of FY25 disbursements coming from direct channels. The company has a significant presence in remote areas, with 70% of its branches located in tier 4 towns and beyond. This strategy, driven by a skilled top management team with over a decade of experience at HDB Financial, reflects strong conviction and consistency.
"HDBFS is well-positioned to improve profits and growth, achieving 2.7% RoA and 17% RoE by March 2028, with an expected AUM and EPS CAGR of 20% and 27%, respectively, over FY25-28," the brokerage said.
The brokerage also emphasised the role of HDFC Bank's parentage in providing HDBFS with the necessary ingredients for success, including competitive pricing, substantial funding, and strong brand visibility. "HDBFS has become a meaningful lender at scale, serving lower-to-mid-income groups in remote areas with limited to no credit history," Emkay stated.
"HDBFS' widespread reach, origination capabilities, and improved capital adequacy post-IPO position it to capture the credit-demand uptick amid regulatory and government growth stimulation efforts," the brokerage added.
However, it cautioned about potential risks, including the RBI's draft circular from October 2024, which demands no overlap in business between a bank and its subsidiary. If adopted, HDFC Bank might have to reduce its ownership in HDBFS to under 20%, within a specified duration.
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