HDB Financial Services share price target at Rs 900, says Emkay ahead of stock listing; here's why

HDB Financial Services IPO: Ahead of its stock market listing on Wednesday, Emkay Global initiated 'Buy' on HDB Financial Services with a share price target of Rs 900 apiece, suggesting a potential 22 per cent upside on the stock over its issue price of Rs 740 per share. Emkay values the HDB Financial stock based on estimated FY27 book value of 3 times. 

It gave three reasons for its optimism. The domestic brokerage said HDB Financial Services is a highly diversified, extremely granular (top 20 accounts constitute 0.34 per cent of AUM), and large-scale lending franchise with over 1.9 crore customers. It has seen multiple credit cycles, Covid, and built from scratch with a bottom-up approach. 

Emkay Global noted that HDB Financial Services' strategy of focusing on direct sourcing (82 per cent of FY25 disbursements), remote areas (70 per cent branches are in tier 4 towns and beyond), and low-to-mid-income groups with limited to no credit history has been driven by the skilled top management (most have been in HDBFS for over 10 years), reflecting strong conviction and consistency. 

Also, with a favorable interest rate cycle amid frontloaded repo rate cuts driving NIM expansion, credit cost moderation, and the growth outlook improving, HDB Financial is seen well-positioned to improve profits, to achieve 2.7 per cent return on asset and 17 per cent return on equity, respectively, by March 2028. The NBFC is seen delivering 20 per cent AUM and 27 per cent EPS CAGR over FY25-28E.

Last heard, the unlisted stock was trading at Rs 811 apiece in the unlisted market, commanding a grey market premium of 9.59 per cent and hinting at a decent listing pop later today.

Emkay Global believes the HDFC Bank’s parentage provided the right ingredients (best price, quantum of funds (AAA rating), and strong brand visibility) to become a meaningful lender at scale. 

"The company serves lower-to-mid income groups in remote areas with limited to no credit history, backed by the promoter and the top management’s conviction in the idea, resulting in its impressive execution (a hallmark of its parent and promoter–HDFC Bank)," Emkay Global said.

The domestic brokerage said HDFC Bank’s parentage and HDB Financial's stable top management helped to build a lender for the underbanked and unbanked segments, to enterprise Bharat. 

"This led to HDBFS becoming a lender at scale with over 19mn customers spread over 1,770 branches across 31 states and union territories, with over Rs1.1trn AUM. This achievement was led by a sharp focus on profitable growth despite shocks from demonetization to GST to Covid, which greatly dented HDBFS’s borrower segments. Still, HDBFS has seen consistent profits since 2009-10 and has not raised any external capital since 2017," Emkay said.

Overall, the diversified product mix and continued focus on the overlooked segments is seen supporting steady 20 per cent AUM growth, compounding to Rs 1.8 lakh crore over FY25-28E. Better cost of borrowings and moderated credit costs is seen driving the RoA to 2.7 per cent by FY28E.

"The 20 per cent AUM CAGR and 2.7 per cent/17 per cent RoA/RoE, backed by the credible and stable management, will drive a gradual re-rating. We initiate coverage on HDBFS with BUY and Jun-26E target price of Rs 900 (+22 per cent upside), implying 3.0 times FY27E P/B," it said.