HDFC Bank’s NBFC HDB Fin Valuation Surge

HDB Financial Services owned by the private sector lender HDFC Bank has massively rewarded its shareholders in the last one year.

The unlisted NBFC share n the unlisted secondary market are trading at Rs 1,100 apiece against Rs 600-700 a year earlier, making the NBFC the fourth most valuable nonbank lender in the country.

At the current price, its valuation stands at a whopping Rs 90,000 crore.

HDFC Bank is considering to list the NBFC arm within 12-18 months.

HDFC Bank owns a 95.9% stake in HDB, which started operating in 2007 and has emerged as one of the larger players in retail financing.

Aditya Puri, Managing Director, HDFC Bank, has partly sold a stake in HDB Fin which was acquired at the time of formation in 2007.

Puri had transferred his stake to the family trust Vistra ITCL as a succession plan.

The trust sold shares at Rs 800-825 share to a South-based family office recently for around Rs 200 crore taking advantage of the high demand for the shares and its rising valuation.

Investors are optimistic about the NBFC’s growth as it has access to cheap sources of funds through its parent and generates high margins.

HDB had Rs 55,425 crore of assets under management and posted a profit of Rs 1,724 crore at the end of March 2019.

Revenue more than tripled to Rs 8,725 crore.

Its overall loan portfolio expanded 22% to Rs 56,287 crore.

Return on assets was about 2.3% in FY19, aided by a healthy net interest margin and low credit cost, while return on equity was at 17.2%.

The average rate of interest on loans charged by the NBFC is 14%, a very high-margin business.

Puri will relinquish his position at the private sector lender in October 2020.

He was inducted as chairman of HDB’s board effective from May 1, 2016.

Net net we believe that the upcoming IPO of HDB will further unlock value for HDFC bank which will be diluting partly here to get it listed some time sooner by 2bd half of 2020

Shareholders of HDFC bank would also benefit here as it is likely that they get some preference in this IPO when the IPO gets finalized

While markets are discounting the exit of Mr. Puri we believe that the HDB business model is very strong and enjoys a strong business moat which will help it command premium vskyatiins once it gets listed on the capital markets ahead in 2020.

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