The share price of share price of HDB Financial Services is in focus. It has declined over 1% in intra-day too but is the stock poised for gains going forward? Global brokerage Jefferies has initiated a positive view on HDB Financial Services. The brokerage has assigned a Buy rating with a target price of Rs 900. This indicates an upside potential of about 19% from current levels. According to the brokerage report, the outlook is driven by expectations of improving loan growth, controlled costs and moderation in credit stress, rather than any near-term spike in profitability.
Let’s take a look at the key reasons why the brokerage is bullish on the stock and what is the rationale –
Jefferies on HDB Financial: Loan growth is expected to stay healthy
According to the brokerage report, HDB Financial’s management expects its loan book, also known as assets under management (AUM), to grow at “18-20% annually on a compounded basis over the next three years.”
The brokerage noted that while prices of vehicles and consumer goods have softened in some segments, volumes have held up, helping overall growth. In commercial vehicles, price pressure eased after manufacturers restored discounts, leading to “6-7% price deflation.” Even so, the company believes demand has reached a base level.
According to the management, “growth has held up in Nov,” though it has also cautioned that sustainability will need to be monitored. Jefferies expects growth to be supported by segments such as used commercial vehicles, loans against property and consumer finance, while unsecured business loans are yet to meaningfully pick up.
Jefferies on HDB Financial: Margins likely to remain steady, costs may ease
Jefferies expects the profitability ratios to improve gradually as funding costs stabilise and operating efficiency improves. According to the brokerage report, HDB Financial has not reduced lending rates despite recent interest rate cuts, which should help protect margins.
The report highlighted that “78% of loan assets are fixed,” which limits the immediate impact of rate changes. Management has guided for net interest margins of “7.9-8% by Q4FY26,” broadly in line with current levels.
On the cost side, the brokerage pointed out that nearly “one third of its non-convertible debentures get refinanced every year,” which could help lower the average cost of funds over time. Operating leverage is also expected to kick in, with management guiding for the cost-to-income ratio to fall to “38-39%” in the medium term.
Jefferies on HDB Financial: Stress has stabilised; credit costs seen moderating
According to Jefferies, this pressure is now easing. The brokerage report stated that “stress in unsecured business loans has stabilised,” while issues in the commercial vehicle portfolio are also showing signs of improvement.
Management has tightened lending filters in unsecured loans, reducing approval rates to “around 28% from 32%,” which has helped improve repayment behaviour. In commercial vehicles, the company has stopped lending to first-time truck operators, a segment that earlier showed higher stress.
The brokerage house believes “credit cost has peaked at 2.7% in the second quarter” and may moderate to “2–2.2%” over time. This, according to the brokerage report, could lift return on assets and return on equity over the next two to three years.
What this means for returns and valuation
With lower credit costs and steady margins, Jefferies expects profitability ratios to improve gradually. According to management, return on assets could rise to “around 2.5%,” while return on equity may improve to “16-17%” in the coming years.
The brokerage also noted that the stock has corrected about “10% from its post-listing peak” and is currently valued at “2.7 times FY27 book value.”