Last chance: HDB Financial's Rs 12,500 crore IPO closes today. Should you chase 8% listing gains?
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Valuation Discount Despite Strong Parentage
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Time is running out for India's largest IPO of 2025. HDFC Bank-backed HDB Financial Services ' mega Rs 12,500 crore public offering closes today, with grey market premium (GMP) signaling potential listing gains of 8% when the stock debuts on Wednesday, July 2. The IPO has already been oversubscribed 1.6 times overall, but retail investors still have room to participate - the retail quota stood at just 76% subscription this morning on the final day of bidding.HDB Financial, India's seventh-largest retail-focused NBFC with a gross loan book of Rs 1,06,880 crore, is seeking to raise capital through a combination of Rs 2,500 crore fresh issue and Rs 10,000 crore offer for sale (OFS). The listing is mandatory under RBI norms for upper-layer NBFCs.Sharekhan issued a bullish call, stating: "We expect healthy listing gains and remain assertive from a medium to long-term perspective. Strong parentage and much smaller in size as compared to its core peer (Bajaj Finance) provides a long runway for growth."The brokerage values the company at an "FY25 price-to-book ratio of ~3.2x/~3.4x at post-issue capital at the lower price band & upper price band respectively, which is reasonable as compared to its peers considering the growth and return ratio profile."SBI Securities projects listing gains of 5-10%, recommending investors "SUBSCRIBE to the issue at the cut-off price." The firm highlighted that HDB is "backed by strong parentage, brand, governance, risk management and a high credit rating" and is "one of the largest NBFCs catering to the 2nd largest customer franchise."Chola Securities issued a 'SUBSCRIBE' rating specifically for listing gains, noting that while there has been "slippage in asset quality, rise in incremental credit cost and compression in Net Interest Margins in FY'25 over FY'24," the "tail winds of interest rate cuts, falling inflation trajectory, normal monsoons is likely to address aforesaid concerns going forward."Nirmal Bang compared HDB with sector leader Bajaj Finance and peers 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," Nirmal Bang noted. However, the firm pointed out 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."This has resulted in HDB delivering "ROA in the range of between 2 to 3% over last 3 years with FY25 post IPO ROA of 2.0%," significantly below the peer average of 3.2% and Bajaj Finance's 5.0%.Despite the performance gap, Nirmal Bang believes HDB is "attractively valued from a long term perspective" when compared to Chola, which has an ROA of 2.4% but trades at 5.5x FY25 versus HDB's 3.4x post-IPO valuation.HDB Financial operates through three main verticals: Enterprise Lending (39.30%), Asset Finance (38.03%) and Consumer Finance (22.66%) of their total gross loan book. The company offers lending products through a wide omni-channel distribution network to serve its diverse customer base.The fresh issue proceeds will be used to augment the company's Tier-I capital base for future growth and onward lending requirements, while the listing fulfills RBI's mandatory requirements for upper-layer NBFCs.
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