HDB Financial Services IPO valuation trails Bajaj Finance, Chola despite steady fundamentals

Mumbai, India — June 26, 2025:
HDB Financial Services Ltd, a non-banking financial company (NBFC) and a subsidiary of HDFC Bank, is gearing up for its much-anticipated initial public offering (IPO). However, early valuation indicators suggest that the IPO pricing could fall short of the high benchmarks set by top-tier NBFC peers like Bajaj Finance and Cholamandalam Investment and Finance Company (Chola), despite HDB’s stable financials, expansive branch network, and low non-performing assets (NPAs).

Valuation Gap Raises Eyebrows

According to people familiar with the matter, HDB Financial is expected to seek a valuation in the range of ₹45,000 crore to ₹55,000 crore in its upcoming IPO. By contrast, Bajaj Finance commands a market capitalization of over ₹5 lakh crore, and Chola is valued above ₹1.2 lakh crore. This stark divergence has led to market speculation regarding investor appetite and the potential reasons behind the discounted valuation.

While HDB has maintained a healthy loan book and demonstrated resilience across economic cycles, the disparity in valuation is being attributed to its relatively modest growth rate and the overall cautious sentiment surrounding NBFCs in the current macroeconomic climate.

Comparing the Numbers

As of FY24, HDB Financial’s loan book stood at ₹74,000 crore, with a net profit of ₹1,760 crore and return on assets (RoA) at 2.2%. The gross NPA ratio remained at a manageable 2.1%, indicating sound asset quality. Its branch network spans more than 1,500 locations across India, with strong traction in semi-urban and rural markets.

Meanwhile, Bajaj Finance reported a loan book of ₹3.2 lakh crore and net profits of ₹14,300 crore in the same period, along with a stellar RoA of 4.1%. Chola, while smaller than Bajaj Finance, posted a loan book of ₹1.1 lakh crore with net profits of ₹3,400 crore and an RoA of 3.2%.

Despite lower topline figures, analysts emphasize HDB’s well-capitalized balance sheet and conservative provisioning practices as a solid foundation for long-term growth.

Analysts Weigh In

"HDB Financial Services has been a sleeping giant for a while," said Rajat Bansal, NBFC analyst at Axis Securities. "Its fundamentals are rock solid — low NPAs, steady profitability, and a wide distribution network. The subdued valuation likely reflects investor hesitation around regulatory tightening and recent NBFC sector volatility rather than HDB’s intrinsic strength."

Priya Mehta, Director of Research at ICICI Direct, noted, “While Bajaj and Chola enjoy premium valuations owing to their aggressive digitization and innovative product strategies, HDB has been more conservative. That conservatism may weigh on its IPO valuation but also makes it a safe long-term bet.”

Sector Headwinds and Investor Caution

The NBFC sector has been under pressure due to tighter Reserve Bank of India (RBI) norms, rising borrowing costs, and increased competition from fintech lenders. This macro backdrop is prompting investors to scrutinize each IPO more carefully, especially in segments like consumer finance and vehicle loans — areas where HDB is significantly present.

Moreover, public investors have not forgotten the IPO performance of some previous NBFC listings, where high valuations failed to sustain post-listing due to external shocks or slower-than-expected growth. This may partly explain the discounted pricing approach by HDFC Bank as it looks to offload a stake while ensuring post-listing stability.

Market Context and IPO Timing

The IPO market has witnessed a revival in 2025, with several listings performing well due to improved investor confidence and robust domestic liquidity. However, given the global economic uncertainty, including inflationary concerns and geopolitical risks, companies are opting for conservative valuations to ensure full subscription and post-listing momentum.

Market insiders expect HDB’s IPO to hit the market by Q4 of FY25, with a draft red herring prospectus (DRHP) likely to be filed by September. The offering may consist of both a fresh issue and an offer-for-sale (OFS) by the parent company, HDFC Bank, which currently holds over 95% stake in HDB.

Investor Outlook

While the valuation may not match Bajaj Finance or Chola, HDB’s IPO is likely to appeal to investors looking for a stable, long-term NBFC play with strong parentage and an established track record. The management’s conservative style, while less exciting from a growth perspective, offers comfort amid a still-evolving regulatory landscape.

For long-term investors, the current valuation could be an opportunity to acquire shares in a fundamentally strong NBFC at a discount. However, near-term listing gains may be muted unless the market re-rates the entire NBFC sector.

HDB Financial’s IPO is shaping up to be a test case for how investors weigh fundamentals versus future growth potential in the NBFC space. While it may not carry the glamour of Bajaj Finance or the momentum of Chola, its valuation gap presents both a challenge and an opportunity — depending on the investor’s perspective.