The initial public offering (IPO) of HDB Financial Services, a subsidiary of India’s largest private lender HDFC Bank Ltd., was fairly priced at ₹740, and hence, the 13% listing gain did not come as a surprise, said Suresh Ganapathy, Managing Director and Head of Financial Services Research at Macquarie Capital Securities.”If you look at the fair value estimates that most analysts had factored in for HDB in their models, as we do for HDFC Bank using a sum-of-parts approach, the valuation was typically in the ₹800-₹850 range. The stock listed close to ₹840, implying a 13% premium, which aligns with those expectations,” he said.
The Macquarie analyst believes that there is limited scope for the upside and the risk is higher to the downside than upside from current levels.
Ganapathy pointed out stress in the vehicle finance segment, both in terms of growth and asset quality, which could weigh on near-term earnings. “About 50% of HDB’s portfolio is exposed to various vehicle finance categories, and that’s where the challenge lies. We expect earnings, especially for vehicle finance NBFCs, to remain subdued in the near term. Based on our fair value assessment, there isn’t much upside left, and risks tilt to the downside.”The analyst flagged concerns about credit costs. “HDB had a tough FY24, with credit costs rising from 1.3% to around 2.1%. While there is an expectation that these costs should normalise this year, current trends don’t indicate a recovery. That could lead to disappointment in earnings or return on assets (ROA), which investors need to be cautious about.”
The Macquarie analyst believes that there is limited scope for the upside and the risk is higher to the downside than upside from current levels.
Ganapathy pointed out stress in the vehicle finance segment, both in terms of growth and asset quality, which could weigh on near-term earnings. “About 50% of HDB’s portfolio is exposed to various vehicle finance categories, and that’s where the challenge lies. We expect earnings, especially for vehicle finance NBFCs, to remain subdued in the near term. Based on our fair value assessment, there isn’t much upside left, and risks tilt to the downside.”The analyst flagged concerns about credit costs. “HDB had a tough FY24, with credit costs rising from 1.3% to around 2.1%. While there is an expectation that these costs should normalise this year, current trends don’t indicate a recovery. That could lead to disappointment in earnings or return on assets (ROA), which investors need to be cautious about.”
He added that the stock is already trading at a forward price-to-book multiple of 2.7-2.8 times. “Given the potential downside to growth projections, this valuation leaves limited room for error,” Ganapathy cautioned.
Shares of the newly-listed entity gained as much as 6% on Thursday, July 3, extending their gains from the 13.5% surge seen on listing day, July 2.
At the highs of the day, shares of HDB Financial were up 20% from their issue price of ₹740.
First Published: Jul 3, 2025 2:24 PM IS
