The aftermath of the COVID-19 pandemic on the quality of assets rally affected HDBFS. However, since then, the company has improved its risk profile and health to support sustained growth in loan books. To grow further, it has decided to raise 2,500 crores in debt.
About HDB Financial Services: Is HDBFS a bank or NBFC?
HDB Financial Services is a subsidiary of HDFC Bank. It is one of the top-most NBFCs in India that serves retail and commercial clients.
As of March 31, 75.8% of its assets portfolio included the secured loans it provided to its customers. Their entire loan portfolio looked like this:
| Asset Class | AUM Share (%) |
| Vehicle Loans | 43.2 |
| Mortgage Loans | 26.6 |
| Personal Loans | 23.9 |
| Consumer Durable Loans | 6.3 |
Source: https://www.careratings.com/upload/CompanyFiles/PR/202308130839_HDB_Financial_Services_Limited.pdf
HDBFS especially stands out amongst all other NBFCs as it has a strong AAA credit rating from CARE and CRISIL for its long-term debt & banking facilities. Even for short-term debt and commercial papers, it boasts a strong A1+ rating.
HDB’s growing finances
In 2022, HDBFS’s Fixed Assets stood at INR 78cr. However, in 2023, it grew to INR 122cr, and to INR 162cr in 2024. A steady investment in fixed assets is a sign that the company is investing heavily in expanding its operations and growing its portfolio.
This effect can be seen in the advances of the year 2022, which stood at INR 57162cr. But in 2023, it grew to INR 66383cr, and in 2024, it grew to a whopping INR 86721cr.
No wonder, HDB Financial Service share price grew from INR 620 in 2022 to INR 1195, from November 2022 to April 2024.
Does the Debt appear safe?
Currently, in India, NBFCs have a Debt-to-Total Assets Ratio of around 63%. In comparison, HDBFS is the same at around 67%, which is a little over the average industry standard. If 2,500 crores more were to be borrowed, then this would raise the ratio to nearly 70%.
However, if we look at debt to equity, as of 2024, HDBFS has an equity capital of INR 794+12949 crores (Share Capital+Reserves). The borrowings stand at INR 68682 crores. This brings the debt-to-equity ratio to 4.99 times, which is at the extremely lower end, considering it's an NBFC. For any NBFC, a debt-to-equity ratio of around 4-8 times is considered safe and good. This means that HDBFS has a lot of room for more debt capital.
What can you expect next from HDB Financial Services?
Recently, MUFG, a Japanese firm, staked 20% of HDBFS’s capital at a valuation of $10bn. This is another huge capital infusion into the company. This strategic collaboration is showing another new sign of the strong financial position of HDBFS.
The debt raise along with equity funds, must improve the NBFC’s overall equity base. This usually has indirect benefits like improving the company’s financial stability and potentially lowering its cost of borrowing.
However, the exact impact on HDBFS's debt-equity ratio would depend on how the proceeds from the stake sale are allocated within the company and whether they are used to retire existing debt or fund future growth initiatives.
What should you do next?
HDBFS seems at a great place with strong fundamentals to invest in. With the current fundraising efforts, let’s understand some of the long-term implications to judge our next move better:
- The combined effects of the debt capital and the equity raising show a proactive approach that HDBFS is using to capitalize on the brilliant boom of Indian financial markets.
- With a well-diversified asset portfolio, strong credit ratings, prudent financial management, etc. HDBFS seems strong enough to get through challenges and capitalize on emerging trends in the financial services sector.
- Most importantly, since 2020, HDBFS has been constantly working hard to improve its digital offerings. This strategic partnership with MUFG could help HDBFS with better technology due to access to international markets and Japanese technology.
With things going so well for HDB Financial Services (HDBFS), it's in a prime position for investment ahead of its potential IPO in 2025. It has a track record of consistent growth and is at a phase of expansion to get the market leadership in NBFCs.This is the best time to invest in HDB share price, and watch your money multiply. HDBFS is an unlisted company, but you can still purchase its shares from unlisted share dealers like Stockify. Stockify is India’s one of the most trusted dealers for unlisted shares. So don’t wait and watch a gem like this grow without placing your bets on it. Connect with Stockify today, and lock your price in for HDB Financial Services.
