Halfway through 2025, India’s IPO pipeline is buzzing with action, but few names have stirred as much interest as HDB Financial Services. The non-bank lender backed by HDFC Bank has just got the SEBI approval, putting it on course for what could potentially be a much anticipated listing. It is the biggest IPO in the NBFC space and largest since the Hyundai issue last October.
HDB Financial IPO key highlights: SEBI approval sets the stage for a Rs 12,500 crore IPO
The market capital regulator, Securities and Exchange Board of India (SEBI) approved HDB Financial’s draft red herring prospectus (DRHP), submitted back in December 2023.
The regulatory nod clears the path for a public issue of Rs 12,500 crore. It comprises a fresh issue of shares worth Rs 2,500 crore and an Offer for Sale (OFS) of Rs 10,000 crore, where the existing promoter HDFC Bank will dilute stake partly.
HDB Financial IPO: issue date, price band
The price band for the HDB Financial Services IPO is ranging between Rs 700-740 per share. The issue is open from June 25 to June 27.
What is HDB Financial and its business
The company founded in 2007 has evolved into one of the major non-deposit taking NBFCs in the country. As per the Reserve Bank of India (RBI), it is classified as an NBFC-Upper Layer (NBFC-UL), which means it is considered systemically important and must adhere to stricter regulatory norms than smaller peers.
Although, HDB Financial operates under the broader HDFC group umbrella, but it maintains a separate governance structure, complete with its own management, board, and risk controls.
Looking at the company’s journey over the years, it has expanded its footprint across urban centres and smaller towns, with a lending portfolio that covers consumer loans, MSME financing, and asset-backed lending.
HDB Financial IPO: Key services provided
HDB Financial runs a multi-layered business that combines lending with business-process outsourcing work. Its lending programme is organised into three distinct streams. Let’s take a look into it –
The first stream is Enterprise Lending, introduced in 2008. In this vertical HDB offers both secured and unsecured loans to micro, small and medium enterprises as well as select salaried professionals. Typical products include working-capital lines, equipment loans, and term funding for shop or office upgrades.
The second and third streams address very different borrowers. Asset Finance, launched in 2010, pays for new and used commercial vehicles, tractors and other income-generating equipment, giving transporters and contractors a way to purchase assets without tying up their own capital. Consumer Finance rounds out the portfolio with short-tenure loans for phones, appliances, two-wheelers and similar personal purchases.
HDB Financial IPO: Financial performance
Over the past few years, HDB Financial Services has managed to grow steadily, especially during volatile economic cycles. Looking at the financial numbers of the company, as of September 30, 2024, the gross loan book stood at Rs 98,620 crore, clocking a compound annual growth rate (CAGR) of 21% since FY22.
Furthermore, the total assets under management (AUM) of the company has reached Rs 90,230 crore, and net profit for FY24 came in at Rs 2,460.8 crore, up from Rs 1,620 crore in FY22.
| Metric | FY22 | FY24 | Remarks |
| Gross Loan Book | – | Rs 98,620 crore | 21% CAGR since FY22 |
| Net Profit | Rs 1,620 crore | Rs 2,460.8 crore | Strong growth in profitability |
| Return on Assets (ROA) | – | 3.03% | Indicates efficient asset use |
| Gross NPA / Net NPA | – | 1.90% / 0.63% | Healthy asset quality supported by PCR of 61% |
The profitability metrics also showed a similar trend. The company recorded a return on assets (ROA) of 3.03% and a return on equity (ROE) of 19.55%. Its net interest margin (NIM) stood above 7. On the asset quality front, the company reported a gross non-performing asset (GNPA) ratio of 1.90% and a net NPA (NNPA) ratio of just 0.63%, supported by a provision coverage ratio (PCR) of 61%.
HDB Financial IPO: HDFC Bank to be the dominant shareholder post listing
HDFC Bank currently owns 94.6% of HDB Financial Services. Although the exact number of shares to be offered in the OFS is yet to be announced, the DRHP notes that HDFC Bank will sell a significant portion of its holding.
Post the public offering, it is also expected that HDFC Bank’s stake is likely to drop below 75%, in line with SEBI’s minimum public shareholding norms.
Furthermore, a few early employees and minority shareholders may also offload shares. Despite this, HDFC Bank will remain the dominant shareholder.
HDB Financial IPO: Market position
HDB Financial Services has expanded its footprint across India with the focus on smaller cities and towns.
A careful analysis reveals that the firm operated 1,772 branches spread over 1,162 cities and towns as of September 2024. This overall covers 31 states and union territories. Moreover, this network serves more than 17.5 million active customers.
Furthermore, the company focuses on semi-urban and rural areas, with nearly 80% of its branches located outside the top 20 largest Indian cities.
HDB Financial IPO: Objective of the issue
The upcoming IPO of HDB Financial Services involves two primary components. First, it is a fresh issue of shares by the company itself and an Offer for Sale (OFS) by the promoter selling shareholder.
In simple understanding, the fresh issue is a major part of the company’s plan to raise new capital. On the flip side, the OFS involves existing shareholders selling a portion of their stake to the public.
One of the major objectives of the fresh issue is to enhance the company’s Tier-I capital base. This capital augmentation is necessary for HDB Financial Services to support its future growth, including expanding its lending activities and increasing its asset base.
In addition to this, a portion of the funds raised through the Fresh Issue will be used to cover the expenses related to the IPO itself. These offer expenses include fees for legal, marketing, and regulatory processes and will be shared proportionally between the company and the promoters.
Furthermore, none of the net proceeds from the fresh issue will go to the promoters or any related parties.
HDB Financial IPO: Risks involved
HDB Financial Services has outlined several risk factors in its DRHP. A key concern is the impact of broader economic conditions on the company’s performance.
As stated, “Any downturn in the macroeconomic environment in India could adversely affect our business, results of operations, cash flows and financial condition.”
Another significant risk involves the quality of the loan portfolio. The company’s gross Stage 3 loans, which indicate stressed or non-performing assets, have fluctuated over recent periods from 4.99% in March 2022 to 1.90% as of September 2024.
The DRHP notes, “Non-payment or default by our customers, our inability to provide adequate provisioning coverage for non-performing assets or change in regulatorily mandated provisioning requirements may adversely affect our financial condition and results of operations.”
Further risks stem from HDB Financial’s reliance on its promoter and brand association. The document states, “We rely on the parentage of our Promoter. However, the interests of the Promoter as our controlling shareholder may conflict with our interests or the interests of our other shareholders.”
Moreover, the company depends on a trademark license agreement to use the HDFC Bank logo. It cautions, “Any termination of our rights to use the HDFC Bank logo or any reputational harm to the HDFC Bank brand could materially and adversely affect our brand recognition, business, financial condition, and results of operations.” Lastly, fluctuations in interest rates pose a risk, with the prospectus noting, “We may be impacted by volatility in interest rates, which could cause our net interest income and our net interest margins to decline and adversely affect our business, results of operations, cash flows and financial condition.”
HDB Financial IPO: What sets it apart?
Some interesting aspects about the HDB Financial IPO includes that it is the first IPO by an HDFC group company since HDFC Asset Management listed in 2018. Another important fact is this will be the first issue launched under the HDFC Bank umbrella after its merger with HDFC.