Emkay bullish on HDB Financial ahead of listing; GMP hints at strong market debut

HDB Financial Services, the NBFC arm of HDFC Bank, is set to list on the BSE and NSE today, amid early signs of strong investor demand. The IPO, priced at ₹740 per share, was quoting a grey market premium (GMP) of ₹65 ahead of its debut, indicating a likely listing around ₹805, translating to a premium of approximately 8.8% over the issue price.

Ahead of the listing, Emkay Global has initiated coverage on HDB Financial Services shares with a ‘Buy’ call, citing its highly diversified (geographically and product-wise) business and large-scale lending franchise. The brokerage has recommended a share price target of ₹900 apiece, indicating a potential 22% upside over the IPO price of ₹740 per share.

“With a favorable interest rate cycle amid frontloaded repo rate cuts driving NIM expansion, credit cost moderation, and the growth outlook improving, HDBFS is well positioned to improve profits/growth, to achieve 2.7%/17% RoA/RoE, respectively, by Mar-28, and deliver ~20%/27% AUM/EPS CAGR over FY25-28E,” Emkay said in a report.

Today, HDB Financial Services serves over 19 million customers through 1,770 branches across 31 states and union territories, with assets under management (AUM) exceeding ₹1.1 lakh crore. This growth has been achieved through a disciplined approach to profitable expansion, navigating headwinds such as demonetisation, GST rollout, and the COVID-19 pandemic — all of which disproportionately affected its borrower base, the report noted.

The brokerage believes that the NBFC is now well-positioned to benefit from a favorable macro environment. Its robust distribution network, strong origination engine, and improved capital adequacy post-IPO equip it to capture rising credit demand, especially amid the government and the RBI’s continued focus on inclusive growth and liquidity support. The company’s direct origination and collection model, while cost-intensive, supports stronger yields.

Going forward, a diversified loan portfolio, improving net interest margins (NIMs) due to frontloaded repo rate cuts, and moderation in credit costs are expected to drive sustainable profitability. With 20% CAGR in AUM, HDB Financial is likely reaching ₹1.8 lakh crore by FY28E, with return on assets (RoA) expected to improve to 2.7%, the midpoint between FY24 and FY25 levels.

HDB Financial’s ₹12,500 cr IPO subscribed 16.7x

The ₹12,500-crore initial public offering (IPO) of HDB Financial Services, the largest since Hyundai Motor India’s ₹27,000-crore issue last year and the first by a HDFC group entity after the merger of HDFC with HDFC Bank in July 2023, has received an overwhelming response from investors. HDFC Bank, which holds a majority stake of around 94.36% in the company, has reduce its stake worth around ₹10,000 crore to around 74.19% via offer for sale in the IPO.

HDB Financial IPO was subscribed 16.69 times as it received bids for over 217.67 crore shares, as against the offer size of 13.04 crore shares. It has become the most subscribed billion-dollar IPO since Zomato-parent Eternal's public issue in 2021, which was booked over 29 times.

The public issue received a strong response from all three segments of investors, led by qualified institutional buyers (QIBs), as the quota reserved for them was booked 55.47 times. The portion set aside for non-institutional investors was booked 9.99 times, and that of retail investors was subscribed 1.41 times. The employee reserved portion was booked 5.72 times, while the reservation portion for shareholders was subscribed 4.26 times.

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