HDB Financial Services Limited Unlisted Shares

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Presentation Summary

HDB Financials Limited, a subsidiary of HDFC Bank with approximately 94.84% shareholding as of March 31, 2023, is a lender providing various retail loans, including loan against property (LAP), commercial vehicle (CV) and construction equipment (CE) financing, gold, consumption, and personal loans. The company has a presence across 1,054 cities in India and operates 1,492 branches as of March 31, 2023.

Financial Performance: As of March 31, 2024, the company’s Advances surged by 30.64% to ₹86,721 crores. The Net Interest Income (NII) increased from ₹4605 Cr in 2021 to ₹6293 Cr in 2024. The Total Income improved from ₹7070 Cr in 2021 to ₹14171 Cr in 2024. The Profit After Tax (PAT) has also seen significant growth from ₹391 Cr in 2021 to ₹2461 Cr in 2024. The Gross Non-Performing Assets (GNPA) have shown improvement, declining from 4.71% in 2021 to 1.90% in FY23-24.

Impact of COVID-19: The COVID-19 pandemic initially slowed loan disbursements. HDB Financials disbursed about ₹29,000 Crores in FY22 and approximately ₹9,000 Crores in Q1FY23. Despite losses in FY21 and poor performance in FY22, the company improved in FY23 and FY24, reporting profits of about ₹1,959 Crores and ₹2,461 Crores, respectively. The COVID-19 pandemic impacted FY20-21 and FY21-22, leading to NPAs rising from 4.50% in FY21 to 7.75% in Q1FY21 during the second wave. However, with improved collection efficiency and economic recovery in FY22-23, GNPAs decreased to 2.73%, and further improved to 1.90% in FY23-24.

Strategic Investment: Mitsubishi UFJ Financial Group Inc. (MUFG) of Japan will acquire a 20% stake in HDB Financial Services, valuing the company at $9-10 billion before its IPO. This investment is expected to strengthen MUFG's position in India's financial sector. The company is anticipated to be valued between $9 billion and $12 billion during its IPO, signaling robust investor confidence.

Valuation: As of May 21, 2024, HDB Financial Services has a book value of Rs. 173 per share. With an unlisted market price (CMP) of Rs. 1100 per share, the price-to-book (P/B) ratio is 6.3x. For comparison, Bajaj Finance is trading at a price-to-earnings (P/E) ratio of 5.4x as of the same date.

Shareholding: HDFC Bank holds a dominant 95.96% share, while the remaining 4.04% is held by others.

Management: G Ramesh (MD and CEO) heads the company, bringing 30 years of experience in business development, banking, consumer finance, and operations.

Basic Parameters: The Market Cap is ₹87230 Cr, the CMP (Current Market Price) is ₹1100. The 52 Week High/Low is ₹1200 / ₹650 and the Face Value is ₹10.

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