HDB Financial's IPO Valuation Explained by MD & CEO: Discount Driven by Investor Insights

₹12,500 Crore IPO Set for Bidding from June 25 to June 27

HDB Financial Services is set to raise ₹12,500 crore through its upcoming HDB IPO, with the bidding window scheduled between June 25 and June 27. In a detailed interview, Managing Director and CEO Ramesh G shared insights into how the valuation for the IPO was arrived at and addressed key concerns around its pricing and business independence.

Valuation Backed by Investor and Banker Consultations

Ramesh G clarified that the IPO pricing, which is seen as being at a steep discount compared to grey market valuations, was not arbitrarily decided. Instead, it was the result of extensive discussions with both domestic and global investors, as well as investment bankers.

“We’ve been doing road shows for quite some time now… the value is derived by talking to investors and bankers, and we work with them to arrive at the value,” he said.

A Deep-Rooted, Independent Lending Business

Addressing concerns about business overlap with parent company HDFC Bank, Ramesh emphasized that HDB Financial operates as a fully independent entity. Since inception, it has originated its customer base organically and does not rely on leads from HDFC Bank. The company has built its own risk management systems, technology, and infrastructure.

“We are not dependent on HDFC Bank for our operations. We are an independent engine to originate, underwrite and service customers,” he added.

Impressive Growth and Customer Base

The non-banking financial company has witnessed significant growth, expanding from 9 million customers in FY22 to 19 million by FY25. It operates 1,770 branches across 1,100 cities, focusing exclusively on retail lending. Notably, its loan book is highly granular, with the top 20 customers contributing to less than 0.4% of total assets under management (AUM).

IPO Strategy and Stakeholding

The IPO includes both a fresh issue and an offer for sale. Post-IPO, HDFC Bank is expected to retain a 75% stake in HDB Financial, ensuring it remains a subsidiary. Ramesh reiterated that while future dilution decisions may be considered, the current focus remains on the IPO execution.

Capital Raise Aligned with Future Growth

Explaining the rationale behind the fresh issue despite healthy capital ratios, Ramesh noted the company is preparing for future opportunities. He emphasized that having capital on hand will enable them to swiftly act on growth initiatives as and when they arise.

Regulatory Compliance and Delinquency Management

On regulatory concerns about overlapping business functions with HDFC Bank, Ramesh stated that HDB Financial does not engage in any form of regulatory arbitrage. He also assured that product pricing and underwriting are tightly linked to their risk management strategies, which help maintain low delinquency rates.

Outlook: Profitability and Product Expansion

The company has been profitable since its second year of operations and continues to focus on launching new products. Ramesh highlighted the emphasis on customer lifecycle engagement and enhancing product quality to deepen customer relationships over time.

“Our mindset is to engage with the customer throughout their lifecycle, irrespective of the product they start with,” he explained.

Conclusion

With strong fundamentals, a large retail customer base, and a focus on sustainable growth, HDB Financial’s IPO marks a significant milestone. Backed by strategic valuation deliberations and an independent operational model, the company is positioning itself as a long-term retail lending powerhouse in India.

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