HDB Financial Services IPO: A Look at the Grey Market Premium and Investment Potential
Shares of HDB Financial Services, the non-banking financial company (NBFC) subsidiary of HDFC Bank, are currently trading at a grey market premium (GMP) of 6.35%, equating to approximately ₹47-48 in the unlisted market. This comes as the company prepares to launch its initial public offering (IPO) on June 25, 2024. Prior to the IPO announcement, HDB Financial shares were trading in the unlisted market at ₹1,200–1,350 per share, which is about 70–80% higher than the upper price band of ₹740 set for the IPO.
Valuation Insights
At the upper price band of ₹740, the IPO values HDB Financial Services at 3.72 times its FY24 book value. This valuation aligns closely with that of other listed peers such as Bajaj Finance and Shriram Finance, indicating that the offer is conservatively priced by institutional standards. Despite the earlier enthusiasm in the unlisted market, the pricing suggests a cautious approach, reflecting the company’s solid fundamentals and market positioning.
Should You Subscribe to HDB Financial Services IPO?
Domestic brokerage firms have given a ‘Subscribe’ rating to the IPO of HDB Financial Services. SBI Securities, for instance, highlights that the company is valued at an FY25 price-to-book (P/B) ratio of 3.2x at the lower price band and 3.4x at the upper price band. The brokerage emphasizes the strong backing from HDFC Bank, which provides a robust foundation in terms of brand, governance, risk management, and a high credit rating.
Analysts believe that HDB Financial is well-positioned for healthy growth in the coming years, particularly as it improves its asset quality. This optimistic outlook makes the IPO an attractive option for potential investors.
About HDB Financial Services IPO
HDB Financial Services aims to raise a total of ₹12,500 crore through its upcoming IPO, which consists of a fresh issue of equity shares worth over ₹2,500 crore and an offer for sale (OFS) of shares worth ₹10,000 crore by existing shareholders. The IPO is being launched at a price band of ₹700 to ₹740 per share, with a face value of ₹10 each. Investors can bid for a minimum lot of 20 shares and in multiples thereafter.
The issue also includes reservations for employees and shareholders, with ₹20 crore worth of shares allocated for employees and up to ₹1,250 crore worth of shares set aside for shareholders. At the upper end of the price band, the IPO implies a post-issue market capitalization ranging from ₹58,205 crore to ₹61,388 crore.
The IPO is being managed by a consortium of prominent book-running lead managers (BRLMs), including BNP Paribas, BofA Securities, Goldman Sachs, and others. The registrar for the issue is MUFG Intime India.
About HDB Financial Services
Founded in 2007 as a subsidiary of HDFC Bank, HDB Financial Services has grown to become the 7th largest diversified retail-focused NBFC in India, with a total gross loan book of ₹902.2 billion as of March 31, 2024. The company is categorized as an Upper Layer NBFC (NBFC-UL) by the Reserve Bank of India (RBI).
HDB Financial Services offers a range of lending products through three primary business verticals: Enterprise Lending, Asset Finance, and Consumer Finance. The company has successfully leveraged its parentage from HDFC Bank, benefiting from its brand recognition while establishing independent operations across various functions, including sourcing, underwriting, and risk management.
Conclusion
As HDB Financial Services prepares for its IPO, the combination of a solid valuation, strong backing from HDFC Bank, and optimistic growth prospects makes it an appealing investment opportunity. Investors should consider their financial goals and risk tolerance before subscribing to the IPO, but the current market sentiment and expert recommendations suggest a favorable outlook for this offering.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own and do not represent the views of The Economic Times.)