HDB Financial shares slip below IPO issue price; stock down 17% from recent high

Shares of HDB Financial Services Ltd on Monday fell for the third straight session to slip below its IPO issue price of Rs 740 apiece for the first time since its listing on July 2. 

The stock dropped 1.38 per cent to hit a low of Rs 738.20 on BSE. With this, the stock is off 17.20 per cent from its high of Rs 891.65 on July 2. 

For the June quarter, HDB Financial Services a 2 per cent degrowth in profit after tax at Rs 568 crore. Its asset under management (AUM) grew 14 per cent YoY Rs 1.1 lakh crore, with sluggish disbursement numbers at Rs 15,200 crore, down 8 per cent YoY, InCred Equities said in a note last month. NIM for the quarter expanded 10 basis points (bps) sequentially led by a shift towards a better yielding book. 

The HDB management indicated more room for margin expansion as 95 per cent of the bank loans are EBLR linked resulting in fast transmission of the rate cut.

"Besides seasonality, the slowdown in disbursements comes largely on account of a slowdown in 2 segments – asset finance (CV) and unsecured business loans. In asset finance, which is largely light commercial vehicle or LCV, the company has reworked their asset strategy and moved towards higher yielding or used finance segment over the last one year. This has resulted in a yield improvement of ~30 bps QoQ," InCred Equities said.

The brokerage said HDB's new CV segment continued to face pricing pressure due to higher production costs along with subdued demand from the other end. While in unsecured business loans, the company was cautious to grow given the looming asset quality stress. These two segments also contributed largely to rising asset quality stress on the books, InCred Equities said.

Gross stage 3 loans increased 16 per cent QoQ or 2.6 per cent of total loans with 70 bps QoQ higher provision coverage ratio or PCR of 56.7 per cent. 

"While gross stage 2 loans increased 41 per cent QoQ or 2.2 per cent of total loans with a 260 bps lower PCR at 20.4 oer cent. Albeit the management remain comfortable at a lower PCR for stage 2 loans. Reported credit costs increased 5 bps QoQ to 2.5 per cent," InCred Equities said.