HDB Financial shelves IPO, opts for NCD; unlisted market shows patience

NEW DELHI: HDB Financial Services, the non-banking financial arm of HDFC Bank, has shelved its plans to float an initial public offering (IPO) and instead plans to raise over Rs 8,600 crore via debt.

Despite the deferred IPO, the company’s unlisted shares have held ground in off-market.

Dealers from the unofficial market for trading in unlisted shares said they have faith in the strong parentage of HDFC Group.

“Had the issue (initial public offering) been announced, investors would have rushed to lap up the shares even at higher prices as IPO a big draw,” said Umesh Paliwal, Co-founder, UnlistedZone. “Investors are willing to wait. The market has already priced in the delay.”

HDB Financial Services enjoys a premium valuation, thanks to the strong parentage of HDFC Group, which holds a 95.1% stake in it. The NBFC will eventually attempt to unlock value via the capital market route in the future, dealers said.

“HDB Financial is backed by top-notch parentage, making investors more reluctant to release shares of high pedigree from their portfolio,” said Paliwal of UnlistedZone.

“Many HNIs and big funds have lapped up the shares, drying up supplies in the market,” he said.

Unlisted shares of HDB Financial services are hovering in the Rs 900-925 range over the past few months. Dealers said the counter did not plunge much during the first wave of the pandemic, as investors are not willing to offload stake anytime soon.

Sunil Chandak, Equity Strategist at Gennext Investrade, said the IPO was never on the cards and the management remained tightlipped on it. “Only shareholders have been in the trance, which has kept the price steady even at skyrocketed valuations,” he said.

The company is considering debt as the cost of borrowing is very less at present.

The company will raise the amount via NCDs in various tranches. The funds would be utilised for fresh lending, refinancing of existing borrowings, and also to boost capital levels.

“The lending business is recovering from Covid-19 jitters. The impact is more severe on those in the unlisted space,” said Chandak. “Things will be clearer, once the economy is back on growth trajectory,” he said.

This subsidiary of India’s largest private sector bank caters to the informal sector and self-employed segment, which have been hit hard by the Covid disruption. It wants to improve the deteriorated asset quality and is awaiting for the disruptive phase to pass.

HDB Financial Services, with 1,319 branches across 959 cities, focuses on the risky unsecured personal loans, new-to-credit loans, consumer durable loans, used car loans, credit card balance transfer and loans to small enterprises.

The impact of the pandemic is visible on the company’s balance sheet, as its net profit halved during the Covid-hit 2020-21, from Rs 1,037 crore to Rs 503 crore.

Profit for the March quarter of FY21 fell 17 per cent to Rs 285 crore from Rs 342 crore a year ago due to a rise in provisions. Total provisions during this period increased to Rs 613 crore from Rs 393 crore a year earlier.

HDB recorded a modest 5 per cent increase in its loan book to Rs 58,947 crore from Rs 55,930 crore a year ago. Net interest income grew 15 per cent to Rs 1,252 crore from Rs 1,084.5 crore.