HDB Financial Services, the non-banking financial arm of HDFC Bank, is set to launch India’s largest NBFC initial public offering (IPO) on June 25, 2025, aiming to raise ₹12,500 crore. The IPO, comprising a ₹2,500 crore fresh issue and a ₹10,000 crore offer-for-sale (OFS) by HDFC Bank, has sparked a frenzy in the grey market, with premiums (GMP) hovering between ₹80-104.50, signaling an 11-14% listing pop at ₹820-844. Yet, with unlisted shares previously trading at ₹1,250—a 66% premium over the ₹700-740 price band—investors face a valuation conundrum. Is the GMP hype justified, or does HDB Financial’s valuation demand a reality check?
The HDB Financial Edge
HDB Financial, established in 2007, operates across 1,771 branches in 1,170 Indian cities, serving 19.2 million customers with a ₹1.07 trillion loan book as of March 31, 2025. Its portfolio spans personal loans, vehicle loans, gold loans, business loans, and loans against property, targeting retail and SME borrowers, particularly in semi-urban and rural markets. The company’s FY24 financials are robust: ₹26.2 billion in net revenue and ₹5.3 billion in profit, with a 19.55% return on equity (ROE), outpacing peers like L&T Finance (9.34%). “HDB’s diversified lending and HDFC’s brand give it an edge,” said Dr. Anil Gupta, an IIM Ahmedabad finance professor.
The IPO’s fresh issue will bolster HDB’s Tier-I capital, enabling loan book expansion, while the OFS will see HDFC Bank, holding a 94.36% stake, pocket ₹9,373 crore in profit. This aligns with RBI’s mandate for upper-layer NBFCs to list by September 2025, ensuring regulatory compliance and capital adequacy. The IPO, managed by a consortium of 12 global banks including Goldman Sachs, Morgan Stanley, and JM Financial, has reserved quotas for HDFC Bank shareholders and employees, boosting retail appeal.
Grey Market Frenzy
The grey market premium (GMP) for HDB Financial has surged, reflecting investor euphoria. As of June 20, GMP ranged from ₹80-104.50, implying a listing price of ₹820-844, an 11-14% premium over the ₹740 upper price band. Earlier this month, GMP hit ₹93 on June 18, dipping to ₹75 on June 20, per IPO Watch. Unlisted shares, however, traded at ₹840-1,250 in recent months, a steep premium over the IPO price, raising concerns of overvaluation. “GMP reflects sentiment, not fundamentals,” warned Neha Sharma, a Mumbai-based analyst. “The 66% discount from unlisted highs suggests caution.”
Retail investors, needing ₹14,800 for a minimum lot of 20 shares, are drawn by HDFC’s pedigree and India’s buoyant IPO market. The Sensex, crossing 79,000, and 4.5 crore demat accounts signal strong retail participation. “HDB’s IPO is a magnet for first-time investors,” said a BSE official. Social media buzz highlights excitement, with many eyeing a quick listing gain. Yet, the GMP’s volatility—fluctuating 18% in days—hints at speculative froth.
Valuation: Hype or Reality?
At the ₹740 upper band, HDB Financial’s post-issue valuation is ₹62,000 crore ($7.2 billion), with a price-to-book (P/B) ratio of 4.4x, below Bajaj Finance’s 6.89x but above L&T Finance’s 2.5x. Its ROE of 19.55% justifies a premium, but a 26% profit drop in Q3 FY25, driven by higher provisions, raises flags. “The P/B is reasonable, but earnings volatility is a risk,” said Sharma. If FY26 profit rebounds to ₹2,800 crore, as some analysts predict, the valuation could look attractive. However, a P/E ratio of 30x, compared to Cholamandalam’s 20x, suggests the market expects robust growth.
HDB’s ₹1.07 trillion loan book, up 15% year-on-year, and 7.8% net interest margin are strong, but rising non-performing assets (NPAs) at 1.5% in FY24 concern investors. “NBFCs face cyclical risks,” said Dr. Gupta. “HDB’s rural focus could face stress if monsoons falter.” The IPO’s timing, amid RBI’s tightened project finance norms, adds regulatory pressure, though HDB’s diversified portfolio mitigates some risks.
India’s IPO Fever
India’s IPO market is red-hot, with 2025 seeing ₹25,000 crore in issues, led by HDB Financial and NSDL. HDB’s IPO, the largest since Hyundai Motor India’s ₹27,000 crore issue, benefits from a resilient Nifty 50 and ample liquidity post-RBI’s neutral policy stance. “Investors are betting on India’s credit growth,” said Priya More, a fund manager in Delhi. HDB’s 1,771 branches and digital lending push align with India’s 8% GDP growth forecast for 2025, driven by SME and retail credit demand.
Yet, the 66% discount from unlisted share peaks puzzles analysts. Unlisted shares traded at ₹1,250 in May, implying a ₹100,000 crore valuation, far above the IPO’s ₹62,000 crore. “The price band reflects banker caution,” said More. The involvement of global banks like Jefferies and Nomura suggests rigorous valuation discussions, as confirmed by HDB’s CEO Ramesh G. “We arrived at the price after investor talks,” he told Moneycontrol, aiming for a balance between growth and affordability.
Risks to Watch
Despite the hype, risks loom. The GMP’s 11-14% premium assumes a strong debut, but oversubscription could lead to low allotments, frustrating retail investors. HDB’s 26% Q3 profit dip, tied to provisioning for bad loans, signals potential volatility. Regulatory scrutiny, including RBI’s NBFC oversight, could cap growth if compliance costs rise. “The market’s euphoric, but fundamentals matter,” warned Sharma. A broader market correction, with the Sensex at historic highs, could also dent listing gains.
A Compelling Bet?
HDB Financial’s IPO offers a chance to invest in a leading NBFC backed by HDFC’s legacy. Its ₹1.07 trillion loan book, high ROE, and rural focus position it for India’s credit boom. The GMP’s 11-14% premium fuels excitement, but the 66% discount from unlisted prices demands scrutiny. Investors must weigh the hype against risks like earnings volatility and regulatory pressures.
Conclusion
HDB Financial’s ₹12,500 crore IPO, opening June 25, 2025, has ignited Dalal Street, with a GMP of ₹80-104.50 signaling an 11-14% listing pop at ₹820-844. Backed by HDFC Bank’s 94.36% stake and a ₹1.07 trillion loan book, the NBFC’s 19.55% ROE and rural focus promise growth. Yet, a 66% discount from unlisted share highs, a 26% Q3 profit drop, and RBI regulations raise valuation concerns. For India’s 4.5 crore demat holders, HDB’s IPO is a bet on credit demand but demands caution. As July 2 listing nears, will GMP hype deliver, or will valuation realities temper the frenzy?
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Last Updated on: Friday, June 20, 2025 8:18 pm by Hemang Warudkar | Published by: Hemang Warudkar on Friday, June 20, 2025 8:18 pm | News Categories: News
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