HDB Financial Services Soars 6% After Strong Listing; Should You Buy, Sell or Hold?

HDB Financial Services is off to a flying start, giving investors more than just a strong debut to cheer about. After listing with a solid 13% gain, the HDFC Bank subsidiary kept the momentum going on 3 July, adding another 6% in trade.

HDB Financial Services’ ₹12,500 crore public issue was also significant on multiple counts, it was the largest ever by a non-banking finance company and the most subscribed billion-dollar IPO since Zomato’s in 2021. Among the eight public offers exceeding ₹10,000 crore, most of which failed to deliver listing gains, HDB stood out. It recorded the third-highest subscription and also ranked third in listing performance, debuting with a 13% gain.

Analysts are also upbeat about HDB Financial Services, banking on its strong HDFC lineage, reasonable valuations, and the potential to benefit from India’s long-term credit growth story.

“We believe the robust investor response reflects market confidence in HDB's business model, its parentage as part of the HDFC group, and its long-term potential in the NBFC space,” said Prashanth Tapse, Senior VP (Research) at Mehta Equities.

Tapse recommends a long-term approach to the stock. “Given the healthy listing and prevailing bullish sentiment, we advise investors to hold the stock. HDB is well positioned to capitalise on structural credit growth, particularly in retail and SME financing,” he added.

For investors who didn’t receive an allotment in the IPO, he suggests looking out for buying opportunities during any post-listing corrections. “HDB offers a value-driven opportunity with both defensive and growth attributes, making it suitable for investors with a 3–5 year horizon,” he said.

Stacked Up Against Peers

When compared to peers such as Bajaj Finance, Cholamandalam Investment, Mahindra Finance, Shriram Finance, and L&T Finance, HDB stands out for its superior asset quality, a result of its cautious customer selection, data-driven underwriting, and backing from the HDFC group. Over the last three years, its loan growth has also remained broadly in line with the sector.

However, HDB’s conservative lending approach comes at a cost. “It operates with lower spreads compared to peers and carries higher operational costs,” said Jehan Bhadha, Senior AVP at Nirmal Bang Institutional Equities. “As a result, its return on assets (ROA) has remained in the 2–3% range over the past three years, with a projected FY25 ROA of 2.0% post-IPO, which stands below the peer average of 3.2% and Bajaj Finance’s 5.0%.”

Bhadha believes this warrants a valuation discount to Bajaj Finance. Still, he sees value in HDB’s current pricing. “Given its strong backing and stable asset quality, the valuation appears reasonable and broadly in line with the peer average, offering investors a degree of comfort,” he noted.

Cautious Silver Linings

Analysts at Canara Bank Securities flagged a few risks that investors should be mindful of. Major among them are HDB’s elevated cost-to-income ratio of 42% and a relatively high unsecured loan exposure of 27%. However, they noted these risks are mitigated to some extent by the company’s disciplined underwriting and data-led customer profiling.

Despite these concerns, analysts at the firm remain constructive on the stock. With a strong brand, rural reach, stable financial profile, and niche positioning, HDB Financial Services is seen as a solid long-term play for investors willing to ride out near-term volatility.