Motilal Oswal has a ‘Neutral’ rating on HDB Financial Services. The brokerage has a target price of Rs 860, implying an upside of 9%.
Motilal Oswal stated that HDB Financial offers a play on India’s high-growth, underpenetrated retail lending market. The company has an Assets Under Management (AUM) of Rs 1.1 lakh crore and 20 million customers. The company has built a granular, largely secured loan portfolio of 73% secured and demonstrated credit discipline.
Motilal Oswal on HDB Financial Services: Factors that can create sustained value
HDB Financial has the foundations for sustainable value creation with strong governance, in-house collections, and a differentiated sourcing model.
Motilal Oswal stated that at the price-to-book value of 2.7 times for FY27, HDB Financial offers exposure to a retail-heavy NBFC with a long runway for growth.
Motilal Oswal on HDB Financial Services: Margin expansion possible on rate cut
As operating leverage kicks in and the cut in policy repo rates brings down the borrowing costs, the brokerage expects margin expansion and a gradual improvement in return on equity.
“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 return ratios,” comes down to a Neutral rating for the stock, said Motilal Oswal.
Motilal Oswal on HDB Financial Services: Growth expectations
HDB Financial delivered an AUM and net profit CAGR of 20% and 29%, respectively, over FY22-FY25. However, FY25 was a tough year for the company, with macro and industry weakness translating into weakness in AUM growth and profitability
According to the domestic brokerage house, HDB Financial will grow faster than system credit, with an expected AUM CAGR of 19%, a net profit growth of 26% CAGR over FY25-FY28, and an RoA of 2.6% and RoE of 16.5% in FY28.