Motilal Oswal initiates coverage on HDB Financial Services; check ratings, views & target
Motilal Oswal Financial Services has initiated coverage on HDB Financial Services, the seventh-largest diversified, retail-focused NBFC in India.
- Aug 21, 2025,
- Updated Aug 21, 2025 12:22 PM IST
Motilal Oswal Financial Services has initiated coverage on HDB Financial Services (HDB), the seventh-largest diversified, retail-focused NBFC in India. HDB's assets under management (AUM) stood at approximately Rs 1.1 trillion as of June 2025. The company experienced a compound annual growth rate (CAGR) of about 20% in AUM from FY22 to FY25, operating over 1,770 branches across 31 states.
HDB's strategic growth is centred on India's substantial middle-income segment, serving salaried individuals, self-employed professionals, and small business owners. This targeted approach has facilitated a steady franchise expansion while reducing concentration risks. The company is well-positioned to benefit from a declining interest rate cycle, with 77% of its loan book on fixed rates.
Shares of HDB Financial Services gained nearly 3 per cent to Rs 811 on Thursday, commading a total market capitalization of more than Rs 67,000 crore. The stock had settled at Rs 788.10 on Wednesday. The stock is still down nearly 12 per cent from its 52-week high at Rs 891.65 hit on July 03, 2025.
The company's borrowing strategy includes 33% of borrowings on floating rates, potentially advantageous with the expected decrease in the policy repo rate. Furthermore, HDB's AAA credit rating aids a lower incremental cost of funds, paving the way for net interest margin (NIM) expansion in FY26. The operational expenses remained elevated due to significant investments in infrastructure expansion, but improvements in the cost-to-income and opex/assets ratios are anticipated from FY25 to FY28.
HDB's lending strategy emphasises strong asset quality maintenance through data-driven underwriting and effective recovery processes. Despite recent pressure on asset quality due to macroeconomic challenges, particularly in commercial vehicle and unsecured business loans, early stabilisation signs are evident. An improvement in asset quality is anticipated in the latter half of this year.
HDB has developed a granular and credit-disciplined lending franchise, underpinned by a bottom-up approach that integrates product breadth, geographic depth, and robust risk management. The company's focus on underserved segments, especially beyond Tier 2 cities, positions it for scalable and profitable growth. HDB aims for a 19% AUM CAGR over FY25-28E with expanding return on assets (RoAs).
HDB Financial Services raised a total of Rs 12,500 crore via IPO on June 2025 as the company sold its shares at Rs 740 apeice in its IPO. The stock has gained nearly 10 per cent from its IPO price so far.
Motilal Oswal projects HDB to achieve a profit after tax (PAT) CAGR of approximately 26% over FY25-FY28, with RoA/RoE reaching 2.6%/16.5% by FY28. This growth is supported by declining credit costs and increased operating leverage. The coverage is initiated with a 'Neutral' rating and a target price of Rs 860, predicated on a 2.7x Sep’27E price-to-book value.
Motilal Oswal Financial Services has initiated coverage on HDB Financial Services (HDB), the seventh-largest diversified, retail-focused NBFC in India. HDB's assets under management (AUM) stood at approximately Rs 1.1 trillion as of June 2025. The company experienced a compound annual growth rate (CAGR) of about 20% in AUM from FY22 to FY25, operating over 1,770 branches across 31 states.
HDB's strategic growth is centred on India's substantial middle-income segment, serving salaried individuals, self-employed professionals, and small business owners. This targeted approach has facilitated a steady franchise expansion while reducing concentration risks. The company is well-positioned to benefit from a declining interest rate cycle, with 77% of its loan book on fixed rates.
Shares of HDB Financial Services gained nearly 3 per cent to Rs 811 on Thursday, commading a total market capitalization of more than Rs 67,000 crore. The stock had settled at Rs 788.10 on Wednesday. The stock is still down nearly 12 per cent from its 52-week high at Rs 891.65 hit on July 03, 2025.
The company's borrowing strategy includes 33% of borrowings on floating rates, potentially advantageous with the expected decrease in the policy repo rate. Furthermore, HDB's AAA credit rating aids a lower incremental cost of funds, paving the way for net interest margin (NIM) expansion in FY26. The operational expenses remained elevated due to significant investments in infrastructure expansion, but improvements in the cost-to-income and opex/assets ratios are anticipated from FY25 to FY28.
HDB's lending strategy emphasises strong asset quality maintenance through data-driven underwriting and effective recovery processes. Despite recent pressure on asset quality due to macroeconomic challenges, particularly in commercial vehicle and unsecured business loans, early stabilisation signs are evident. An improvement in asset quality is anticipated in the latter half of this year.
HDB has developed a granular and credit-disciplined lending franchise, underpinned by a bottom-up approach that integrates product breadth, geographic depth, and robust risk management. The company's focus on underserved segments, especially beyond Tier 2 cities, positions it for scalable and profitable growth. HDB aims for a 19% AUM CAGR over FY25-28E with expanding return on assets (RoAs).
HDB Financial Services raised a total of Rs 12,500 crore via IPO on June 2025 as the company sold its shares at Rs 740 apeice in its IPO. The stock has gained nearly 10 per cent from its IPO price so far.
Motilal Oswal projects HDB to achieve a profit after tax (PAT) CAGR of approximately 26% over FY25-FY28, with RoA/RoE reaching 2.6%/16.5% by FY28. This growth is supported by declining credit costs and increased operating leverage. The coverage is initiated with a 'Neutral' rating and a target price of Rs 860, predicated on a 2.7x Sep’27E price-to-book value.