Unlisted markets in India are picking up steam over the last couple of years, with more investors looking towards high-growth, pre-IPO firms. The unlisted space has become an asset class on its own, and the market size is estimated to cross 2 lakh crores. Businesses that have good fundamentals, have a decent management team, and stand a chance of being listed in the future are what investors look forward to making investments; these are attributes found in HDB Financial Services (HDBFS).
A major non-banking financial corporation, HDBFS, is the subsidiary of HDFC Bank, and it has registered sustained growth in recent years. The revenues were 1,41,711 million and net income (after tax and other income) was 48,852 million in FY2024. The company has a huge return on equity of 35.5%, a good indication of profitability. The HDBFS has a market capitalisation of about 594810 million in the unlisted market, which makes it worth observing.
B) Company History
Incorporated in 2008, HDB Financial Services (HDBFS) is a non-banking finance company (NBFC) that deals with both retail and commercial financing requirements. The company has more than 23 services, which are personal loans, business loans, gold loans, consumer durables finance, enterprise business loans and asset finance.
It enjoys top quality credit ratings, which include CARE AAA, CRISIL AAA long-term debt and bank facilities and A 1+ short-term debt and commercial paper. Such a good rating profile indicates reasonable risk management and financial soundness.
HDBFS utilised its HDFC brand ecosystem and has been able to grow fast, developing a diversified loan book and ensuring a good asset quality. Technological usage and efficiency of processes in the company allow it to expand demographics across urban and semi-urban markets.
Highlights of Financial Performance
Revenue Growth
The revenue of HDBFS has increased by over 12.2% (CAGR) within 6 years, where the revenue has effectively doubled to Rs 1,41,711 million in FY2024, compared to 70,271 million in FY2018.
Profitability Trends
The growth trajectory of net profit (PAT) is expected to increase by 2024 (RS 9,330 million in FY2018 to Rs 24,608 million) with good post-pandemic gains, as the momentum of business recovery is regained.
Return Metrics
- Return on Equity (ROE): 35.5 per cent in FY2024
- Return on Total Assets (ROA): 5.3 for FY 2024. These are the signs of high operational efficiency and great shareholder value addition.
- Capital Adequacy: The Debt/Equity ratio shows a very high leverage rate of 5.7, which is characteristic of lending institutions. The risk associated with it is, however, abated through AAA ratings.
Cash Flow insights
In FY2024, HDBFS has registered healthy cash flows due to financing activities worth approximately 191,336 million Indian rupees in the same period, compared to adverse cash flows due to operations and investments. The net cash flow was positive to 2,520 million rupees in FY2024. Although cash inflows involved in operating activities have been unstable in past years, the company still has liquidity to offer growth in lending.
Earnings Per Share (EPS)
The EPS of the company has increased to 31.1 of FY2024 against 11.9 in FY2018, which shows value addition to shareholders in a sustainable manner.
Conclusion
HDB Financial Services is a differentiated growth story amongst the NBFCs in India with good financial parameters, a broad product base and the parent HDFC group are among the most trusted names in the industry. With great profitability, a good Credit Rating and steady growth of revenues, HDBFS stands out as an interesting investment proposal in the Unlisted market.
The stock of HDB Financial Services offers a good value opportunity to investors who want exposure to good long-term growth potential and to build wealth by investing in the NBFC.