HDFC Bank has kicked off the process for the much-anticipated IPO of its subsidiary, HDB Financial Services. As one of the leading non-banking financial companies (NBFCs) in India, HDB Financial operates under the regulations set by the Reserve Bank of India (RBI), which require large NBFCs to be listed by September 2025. With the recent board approval to issue new shares worth Rs 2,500 crore, the listing also includes an offer for sale where existing investors will sell their shares.
HDFC Bank’s Dominant Stake in HDB Financial
HDFC Bank holds an impressive 94.6% stake in HDB Financial, which means the upcoming IPO will have a direct impact on the bank’s valuation. As per the over-the-counter (OTC) market, HDB Financial is expected to be valued between Rs 1,375 and Rs 1,450 per share. This translates to a market capitalization of Rs 1.08 lakh crore to Rs 1.14 lakh crore, based on a pre-money valuation of 5.3-5.6 times the estimated book value for FY26. This positions HDB Financial in a premium category compared to other NBFCs.
HDB Financial: A Growing NBFC Since 2007
Founded by HDFC Bank in 2007, HDB Financial has steadily risen in prominence within the retail loan market. Over the years, it has expanded its branch network to 1,727 branches across 1,154 cities as of June 2024. The company’s assets under management (AUM) stand at over Rs 90,000 crore, a growth of 21% CAGR over the last two years. By June 2024, its AUM further climbed to Rs 95,600 crore, reflecting a 30% year-on-year growth.
Diverse Product Base Driving Growth
HDB Financial’s product portfolio is quite diversified. Its core segments include financing for commercial vehicles and construction equipment, which make up a significant portion of its AUM. Recently, the company has also ventured into new areas like consumer durables, gold loans, and digital product financing. These newer segments now account for 8% of its total AUM, demonstrating HDB Financial’s efforts to broaden its product offerings and reduce dependency on any single category.
The HDFC Bank Advantage
One of HDB Financial’s key strengths lies in its association with HDFC Bank. The company benefits from lower funding costs due to the strong backing of its parent organization. This has enabled HDB to achieve impressive financial ratios, with a return on assets (RoA) of 3% and a return on equity (RoE) of 19.5% for FY24. The support of HDFC Bank has allowed HDB Financial to raise funds at competitive rates, giving it a substantial edge in the market. HDB’s strong financial performance, combined with the success of other HDFC Group companies like Gruh Finance, HDFC Life, and HDFC AMC, further solidifies its high valuation.
Can HDB Financial Surpass Bajaj Housing Finance?
Bajaj Housing Finance, another prominent NBFC, was recently listed with a market capitalization of Rs 1.36 lakh crore. Although Bajaj Housing holds a higher valuation compared to HDB Financial for now, it is important to consider that Bajaj operates primarily in the housing finance sector, which is highly competitive and has thin margins. This limits the scope for significant improvement in its return on assets (RoA).
HDB Financial, on the other hand, boasts a more diversified product line, spanning across various loan categories beyond just housing finance. With this broad portfolio and HDFC Bank’s backing, HDB Financial has the potential to achieve a valuation exceeding Rs 1.40 lakh crore post-listing. Analysts expect the IPO price to be over Rs 1,700 per share, setting the stage for HDB to possibly overtake Bajaj Housing in terms of market value.
What’s Next for HDB Financial?
As HDB Financial prepares for its IPO, its growth trajectory looks promising. The company’s diverse product base, strong support from HDFC Bank, and favorable financial performance position it to be a major player in the NBFC space. While Bajaj Housing Finance currently leads in terms of valuation, the market could witness a shift once HDB Financial is listed, potentially making it the largest NBFC in India.
