Emkay Global, a brokerage house, initiated coverage on HDB Financial Services on the first day of its listing. The broker has a Buy rating on the stock with a target price of Rs 900, which implies an upside of almost 22%.
Here are four reasons why the brokerage form has a ‘Buy’ rating on it:
Emkay Global on HDB Financial: Diversified, granular, and large-scale lending franchise
HDB Financial is highly diversified both geographically and product-wise. It operates as an extremely granular lending franchise, with its top 20 accounts constituting only about 0.34% of its Assets Under Management (AUM). The company serves over 19 million customers and has successfully navigated multiple credit cycles, including events like Covid-19, building its operations from a bottom-up approach. This extensive customer reach is supported by a robust omnichannel distribution network and a multi-product portfolio.
Emkay Global on HDB Financial: Clear strategy with strong execution and skilled management
HDB Financial‘s strategy focuses on direct sourcing, which accounted for approximately 82% of its FY25 disbursements. The company targets remote areas, with 70% of its branches located in tier 4 towns and beyond, and serves low-to-mid-income groups who often have limited or no credit history.
According to Emkar Global, this consistent strategy is driven by a skilled top management team, many of whom have been with the NBFC for over 10 years, demonstrating strong conviction and consistency in their approach.
Emkay Global on HDB Financial: Favourable external environment and improving financial outlook
A favourable interest rate cycle, coupled with frontloaded repo rate cuts, is expected to drive Net Interest Margin (NIM) expansion and credit cost moderation for HDB Financial Services. The improving growth outlook positions the NBFC to enhance profits and growth, targeting a Return on Assets (RoA) of 2.7% and Return on Equity (RoE) of 17% by March 2028.
They also expect the NBFC to increase its AUM by 20% on a compounded basis and 27% EPS growth between FY25 and FY28. The key factors that support the positive rating include widespread reach, origination capabilities, and improved capital adequacy, enabling it to capture the uptick in credit demand.
Emkay Global on HDB Financial: Strong parentage of HDFC Bank
Additionally, HDFC Bank’s parentage provides HDB Financial with significant advantages, including competitive pricing and quantum of funds due to its AAA credit rating, and strong brand visibility, which are crucial ingredients for becoming a successful lender.