Emkay Global Initiates Coverage on HDB Financial Services with a Buy Rating

Emkay Global, a brokerage house, has initiated coverage on HDB Financial Services with a Buy rating, citing strong growth prospects and HDFC Bank backing. The broker has a target price of Rs 900, implying an upside of almost 22%. HDB Financial Services has a diversified and granular lending franchise, with a strong focus on direct sourcing and a skilled top management team.

Key Takeaways:

HDB Financial Services is a highly diversified and granular lending franchise, with its top 20 accounts constituting only about 0.34% of its Assets Under Management (AUM).
The company operates through a robust omnichannel distribution network and a multi-product portfolio, serving over 19 million customers.
HDB Financial's strategy focuses on direct sourcing, which accounted for approximately 82% of its FY25 disbursements, targeting remote areas with 70% of its branches located in tier 4 towns and beyond.
The company has a skilled top management team, with many members having been with the NBFC for over 10 years, demonstrating strong conviction and consistency in their approach.
The improving growth outlook positions the NBFC to enhance profits and growth, targeting a Return on Assets (RoA) of 2.7% and Return on Equity (RoE) of 17% by March 2028.
The NBFC aims to increase its AUM by 20% on a compounded basis and 27% EPS growth between FY25 and FY28.
HDFC Bank's parentage provides HDB Financial with significant advantages, including competitive pricing, quantum of funds, and strong brand visibility.
HDB Financial has successfully navigated multiple credit cycles, including events like Covid-19, building its operations from a bottom-up approach.

Statistics:

0.34% constitutes the share of top 20 accounts in HDB Financial's Assets Under Management (AUM).
82% of HDB Financial's FY25 disbursements came from direct sourcing.
70% of HDB Financial's branches are located in tier 4 towns and beyond.
20% is the target increase in AUM on a compounded basis.
27% is the expected increase in EPS between FY25 and FY28.
2.7% and 17% are the targets for Return on Assets (RoA) and Return on Equity (RoE), respectively, by March 2028.

Sources:

Emkay Global research report on HDB Financial Services.