HDB Financial overhyped on valuations, underperforming Bajaj Finance, and Shriram Finance on fundamentals.
Expert Analysis:
Fair Valuation Estimate: Given a 30% lower return on assets and higher performance variability, HDB Financial’s fair valuation is ₹800-₹900 per share, reflecting a 30% discount to Bajaj Finance’s multiples.
Diverse AUM: HDB Financial Services has an AUM of ₹1 lakh crore (H1FY25), with a portfolio of 47% vehicle finance, 21% loans against property, 15% business loans, 12% personal loans, and 29% unsecured loans.
Strong Growth and Narrowing NIMs: HDB achieved 29% YoY growth in FY24 and 27% in H1FY25, driven by consumer finance loans, while NIMs narrowed by 30-40 basis points from FY22-24 due to higher cost of funds.
Declining ROA and Rising Credit Costs: HDB Financial Services' ROA dropped to 2.6% in H1FY25 from 3% in FY24, while credit costs rose from 1.3% in FY24 to 1.9% in H1FY25, driven by higher stage-2 and stage-3 loans and stress in unsecured segments.
Valuation vs Peers: HDB Financial Services’ current unlisted market price of ₹1,240/share implies an FY26F P/B of 4.6x, higher than peers that deliver higher ROEs and growth but trade at lower multiples.
Valuation Comparison: Despite Bajaj Finance’s potential for 4% ROA and 34% growth in FY24E, it trades at 3.8x FY26E P/BV, while Shriram Finance, with 3% ROA potential, trades at a discount compared to HDB Financial Services.
