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Company Overview:

HDB Financial services is the seventh largest leading, diversified retail-focused NBFC in India in terms of the size of Total Gross Loan book at Rs. 1,068.8 billion as at March 31, 2025. The Company is categorized as an Upper Layer NBFC (NBFC-UL) by the RBI. They offer a large portfolio of lending products that cater to a growing and diverse customer base through a wide omni-channel distribution network. Their lending products are offered through, three business verticals: Enterprise Lending accounting for (39.30%) Asset Finance (38.03%) and Consumer Finance (22.66%) of their total gross loan book.

Objects and Details of the Issue:

·The public issue consists of Offer for Sale of Rs.10, 000 cr and fresh issue of Rs.2,500 cr aggregating up to Rs 12,500 Cr.

  Investment Rationale:

* Highly granular retail loan book, bolstered by a large and rapidly growing customer base

* Large, diversified and seasoned product portfolio

* Digitally powered pan-India distribution network

* Distinguished parentage of HDFC Bank

* High-quality liability franchise

* Advanced technology tools

Valuation and Recommendation:

We compare HDB with Bajaj Finance and also with other vehicle, MSME, Consumer financiers like Chola, M&M Finance, Shriram Finance and L&T Finance. HDB’s asset quality is superior to peers on the back of its strong ownership and management pedigree. Its loan growth has been in line with peers over last 3 years. However we note that owing to HDB’s prudent focus on quality of customers, it earns a lower spread vis-à-vis peers. Also HDB’s operational cost is elevated. Thus HDB has managed to deliver ROA in the range of between 2 to 3% over last 3 years with FY25 post IPO ROA of 2.0%. This is below the peer average of 3.2% and Bajaj Finance’s 5.0% witnessed in FY25. Although we believe that HDB should be valued at a substantial discount to Bajaj Finance, its superior parentage and asset quality performance lead us to believe that it is attractively valued from a long term perspective upon comparing with Chola which has ROA of 2.4% and is being valued at 5.5x FY25 compared to HDB’s 3.4x (post IPO). Also HDB’s valuation is in line with the peer average which provides us comfort. Therefore, we recommend SUBSCRIBE to the issue, with a Long-term POSITIVE outlook.

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SEBI Registration number is INH000001766