Motilal Oswal initiated coverage on newly listed non-bank HDB Financial Services Ltd with a 'neutral' outlook, believing that the firm can offer high-teens growth in its assets under management over the next few year.
The brokerage kicked off coverage with a 'neutral' rating, and a target price of Rs 860 per share, which indicates a nine percent upside. "With valuations largely factoring in medium-term growth potential, we would look for clearer evidence of stronger execution on loan growth, ability to better navigate industry/product cycles, and structural (not just cyclical) improvement in its return ratios," the brokerage added.
Backed by HDFC Bank’s institutional ethos and a seasoned management team, HDB Financial Services is positioned to deliver 19 percent AUM CAGR (over FY25-28E) with expanding RoAs without compromising on asset quality or governance, according to Motilal Oswal.
The brokerage noted that HDB Financial Services is well positioned to benefit from a declining interest rate cycle, with ~77 percent of its loan book on fixed rates, while ~33 percent of its borrowings on floating rates will benefit from the decline in the policy repo rate.
"Coupled with its AAA credit rating, the company is already experiencing benefits on its incremental cost of funds (CoF), which will pave the way for a NIM expansion in FY26," said Motilal Oswal.
The broking firm also noted that HDB Financial’s lending strategy is underpinned by a focus on maintaining strong asset quality, supported by data-driven underwriting, rigorous portfolio monitoring, and effective recovery processes.
"Over the last year, asset quality came under some pressure, leading to higher credit costs, largely due to macroeconomic challenges and stress in select segments such as CV and unsecured business loans. Encouragingly, HDB is already experiencing early signs of stabilization in these segments, and we anticipate an improvement in asset quality from the second half of this year," the report added.
HDB Financial has built one of India’s most granular and credit-disciplined lending franchises, rooted in a bottom-up approach that combines product breadth, geographic depth, and robust risk management. "With a strategic focus on underserved segments across Tier 2 and beyond, a direct sourcing-led origination engine, and execution precision honed over multiple credit cycles, HDB is now entering a phase of scalable, profitable growth."
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