HDFC Bank's NBFC Arm HDB Financial Services Gears For Rs 12,500 Cr IPO; 6 Things To Know Before Investing

HDB Financial Services, the non-banking financial arm of HDFC Bank, is all set to make its market debut, having filed preliminary IPO papers with the Securities and Exchange Board of India (SEBI). This long-anticipated initial public offering (IPO) is expected to be a mix of fresh equity issuance and a significant Offer-for-Sale (OFS) component, paving the way for HDB Financial Services to fulfil regulatory requirements and expand its capital base. Here's an in-depth look at the key details investors should know about this upcoming IPO.

IPO Structure and Fund Utilization
HDB Financial Services aims to raise a substantial Rs 12,500 crore from this IPO. The structure includes a fresh issue of equity shares valued at Rs 2,500 crore, while HDFC Bank, holding a 94.36% stake in HDB Financial, will offer shares worth Rs 10,000 crore through the OFS route. This capital influx will primarily be used to boost HDB Financial's Tier-I capital base, enabling it to meet future financial requirements, enhance lending capacities, and support its growth.

Regulatory Compliance and RBI Mandate
The decision to list HDB Financial Services aligns with a mandate from the Reserve Bank of India (RBI) issued in October 2022, which requires large non-banking financial companies (NBFCs) to list on stock exchanges within three years. Complying with these guidelines, the IPO is scheduled to position HDB Financial Services as a publicly traded entity while retaining its status as a subsidiary of HDFC Bank.

Valuation and Financial Performance
HDFC Bank is reportedly seeking a valuation of approximately Rs 78,000-87,000 crore for HDB Financial, which translates to a price-to-book value between 4.5 and 5 times. The company's financial performance has been solid, with a loan book growth of 17% year-on-year, reaching Rs 66,000 crore in FY23, driven by robust demand for personal, vehicle, and small business loans. In FY24, revenue from operations surged to Rs 14,171 crore from Rs 12,402 crore the prior year, with net profits jumping to Rs 2,460 crore from Rs 1,959 crore in FY23. As of June 2024, HDB Financial's net worth stood at approximately Rs 13,300 crore.

Product Offerings and Market Position
Founded to serve both retail and commercial segments, HDB Financial Services offers a comprehensive suite of products including personal loans, vehicle loans, and loans against property. With over 1,680 branches nationwide, the company holds a prominent position in India's NBFC sector. This IPO represents a strategic milestone for HDB Financial as it seeks to expand its visibility and capture more market share.

Key Players in the IPO Process
Leading investment banks and financial institutions will be managing the book for HDB Financial Services' IPO, including JM Financial, BNP Paribas, BofA Securities India, Goldman Sachs (India) Securities, and HSBC Securities and Capital Markets (India) Pvt Ltd.

Implications for HDFC Bank
For HDFC Bank, the IPO represents a chance to monetize part of its investment while adhering to regulatory norms and maintaining control over HDB Financial Services. The listing also enables HDFC Bank to capture value from one of its most significant subsidiaries.

As HDB Financial Services prepares for its IPO, the listing is set to be one of the largest in the Indian financial sector, further energizing a robust IPO market that has already seen major offerings this year. Investors will be watching the final details of the offering, which promises to open new growth avenues for HDB Financial and its parent company, HDFC Bank.