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HDB Financial Services' initial public offering (IPO) has generated considerable interest and debate among investors and analysts. The company's stock debuted on the bourses at a premium of ₹835, representing a 13% increase over its issue price of ₹740 on the National Stock Exchange (NSE). This strong listing marks a significant milestone for HDB Financial Services, particularly considering it is the most subscribed billion-dollar IPO since Zomato's issue four years prior and the largest non-banking financial company (NBFC) IPO to date. The IPO consisted of a fresh issue of ₹2,500 crore and an offer for sale of ₹10,000 crore by its parent company, HDFC Bank. While the stock closed slightly higher at ₹840.25 on its debut day, the long-term outlook for the company remains a subject of varying opinions among market experts.
Analysts are providing mixed recommendations regarding HDB Financial Services' future prospects. Some suggest that investors who participated in the IPO can choose to hold the stock for a long-term view, spanning two to three years. Others advise caution, recommending that fresh investors wait for potential dips in the stock price before making a purchase. Manish Chowdhury, head of research at StoxBox, attributed the better-than-expected listing to positive market sentiment driven by investors' confidence in HDFC Bank's strong parentage. However, he also cautioned that the listing gains were capped by concerns about the company's sluggish FY25 performance, particularly in terms of margin and asset quality. Chowdhury recommends that fresh investors remain on the sidelines, closely monitoring the company's upcoming quarterly results and paying attention to management commentary before making any investment decisions. He also noted that while Bajaj Finance is trading at higher valuations compared to HDB Financial Services, other NBFC players are trading at cheaper valuations.
The IPO's subscription figures reflect strong investor demand. The overall IPO was subscribed 16.69 times on the final day of bidding. The qualified institutional buyers (QIBs) portion was particularly popular, being subscribed 55.47 times. The non-institutional investors (NIIs) or high-net-worth individuals’ portion was subscribed 9.99 times, while the retail investors portion saw a subscription rate of 1.41 times. This indicates a broad range of investor interest in HDB Financial Services. However, some analysts are raising concerns about the company's ability to maintain its growth momentum and compete effectively with its peers.
One of the key concerns highlighted by analysts is HDB Financial Services' performance relative to its competitors, particularly Bajaj Finance. Dharmesh Kant, head of research at Cholamandalam Securities, pointed out that Bajaj Finance has consistently maintained high growth and high asset quality, which HDB Financial Services has struggled to replicate. Kant advised investors to exit their positions post-listing gains, citing concerns about the company's financials compared to its peers. He also suggested that while other NBFC stocks may be expensive, their growth trajectory is likely to be better, making them a more attractive investment option. Kant believes investors should wait for a more opportune moment to buy HDB Financial Services or explore other NBFCs where valuations have not yet cooled off.
Another area of concern is HDB Financial Services' reliance on consumer finance, which constitutes approximately 24% of its loan book. Kant emphasized the need for the company to demonstrate strong growth in this segment, which he considers a grey area. The company's market capitalization on its listing day was Rs 69,704.3 crore, while Bajaj Finance's market value stood significantly higher at Rs 5.73 lakh crore, underscoring the difference in market perception and valuation between the two companies.
Despite the concerns, some analysts remain optimistic about HDB Financial Services' long-term prospects. Emkay Global initiated coverage on the stock with a 'Buy' rating and a target price of Rs 900, implying an upside potential of 7.11% from Wednesday’s closing price. They believe that HDB Financial Services is a structurally constructive bet and recommend that investors hold the stock for a two-to-three-year perspective. Shweta Daptardar, VP — institutional equity research at Elara Securities, echoed this sentiment, stating that HDB Financial Services, despite trading at a discount to Bajaj Finance and Cholamandalam Finance, is an upper-layer NBFC that offers a well-diversified portfolio and a granular loan book. She believes this makes it a long-term buy for new investors. Daptardar also suggested that fresh investors can accumulate the stock on dips, as no immediate returns are expected. However, she does not anticipate any significant corrections in the stock price, citing higher liquidity and low-interest rate scenarios as favorable factors for NBFCs like HDB Financial Services.
The article suggests a mixed outlook for HDB Financial Services. While the IPO listing was successful, fueled by the backing of HDFC bank and overall market sentiment, the company faces key challenges in its financial performance, specifically related to margins, asset quality, and growth in the consumer finance sector. These issues raise concerns when compared to competitors, particularly Bajaj Finance, known for consistent robust growth. The analysts' opinions vary, some suggesting holding existing stock for long-term gains, while others recommend waiting or exiting positions altogether. The varying opinions seem to hinge on investor risk tolerance and investment horizon, with those willing to wait for dips or hold for several years viewing the stock as a worthwhile investment, and more risk-averse investors favoring competitors with proven track records. It should be noted that HDB financial services does benefit from a diversified portfolio and granular loan book, making the company relatively stable compared to peers, despite the challenges listed. Overall, the HDB financial IPO creates a complex financial landscape, where investors should assess their risk tolerance, analyze company financials, and consider market conditions when making a decision.
Source: Can HDB Financial Services maintain its momentum after a strong IPO listing?