Rising asset quality on top of board’s mind, HDB says ahead of IPO | Company Business News-OxBig News Network

Mumbai: HDB Financial Services, the country’s largest non-banking financial company (NBFC), said on Friday it has arrived at a discounted valuation of $7.2 billion for its initial public offering (IPO) next week, following feedback from investment bankers.

The non-bank financier was initially eyeing a valuation of $10 billion, which has been pared down to $7.2 billion on concerns of a potential impact due to a draft Reserve Bank of India (RBI) circular requiring banks to reduce their stakes in NBFC arms engaged in similar activities to 20%.

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The IPO price has been set between ₹700 and ₹740 per share, which is at a 40% discount from its unlisted market price. The shares traded around ₹1,200-1,250 in the ‘grey market’.

“We embarked on an IPO journey last year, we have been in touch with investors both domestically and overseas, so the price has been arrived at based on feedback from our BRLM’s right, so that we believe that it is the price based on the price discovery mechanism that happens for IPO,” said Ganesan Ramesh, MD and CEO.

HDB Financial is looking to raise ₹12,500 crore through the IPO, the bidding for which will take place between 25 and 27 June.

The IPO will see a fresh issue of ₹2,500 crore and an offer for sale worth ₹10,000 crore by HDFC Bank, which currently holds a 94.6% stake in the company.

The bank’s stake will get diluted to 75% post the IPO.

HDB also addressed concerns regarding rising bad loans as the company saw its gross non-performing assets rise to 2.26% at the end of March 2025 from 1.9% at the end of March 2024.

“Asset quality has been top of the board’s mind. If you look at post-covid, 2022 till now, the asset quality for an NBFC serves a segment who is underserved because perhaps the risk is slightly different in that segment,” said Arijit Basu, chairman, HDB Financial Services.

HDB has a diversified loan book with enterprise lending accounting for 39% of the assets under management, asset finance accounting for 38% and consumer finance accounting for 23%. Nearly 73% of the loan book is secured and 27% unsecured.

According to broking firm Investec, HDB remains structurally weaker when compared to peers like Bajaj Finance and Cholamandalam Investment.

“While RoA (return on assets) stands at 3.03% and RoE (return on equity) at 19.55%, these metrics are overshadowed by higher operating costs and a slower growth trajectory,” it said. “⁠We view the IPO as a tactical bet only, given the limited upside at an estimated 2.7x FY27 price-to-book valuation, and recommend caution until asset quality improves and operational efficiency gains traction,” it added.