HDB Financial Services IPO: Analysis for Short-Term Listing Gain Potential

I. Executive Summary

This report provides a concise analysis of the HDB Financial Services (HDBFS) Initial Public Offering (IPO) with a focus on its potential for short-term listing gains. HDBFS, a significant Non-Banking Financial Company (NBFC) and a subsidiary of HDFC Bank, is launching a substantial ₹12,500 crore IPO, driven in part by a regulatory mandate from the Reserve Bank of India (RBI). The company demonstrates robust revenue growth and a diversified lending portfolio, benefiting from strong parental backing. However, recent financial performance indicates a decline in net profitability and an increase in non-performing assets, alongside rising leverage.

The IPO is priced at a Price-to-Book (P/B) ratio of approximately 3.72x and a Price-to-Earnings (P/E) ratio of around 27.1x at the upper end of the band, suggesting a valuation that is largely in line with established peers, rather than being significantly underpriced. While the overall Indian IPO market has been buoyant, performance within the financial services sector has been mixed. Grey Market Premium (GMP) trends for HDBFS have shown volatility, indicating a fluctuating speculative sentiment.

Considering the strong brand association with HDFC Bank and favorable macroeconomic tailwinds for the Indian financial sector, there is a foundation for a positive listing. However, the company's recent decline in net profit and increased asset quality concerns, coupled with a valuation that appears fair rather than deeply discounted, suggest that any short-term listing gains may be moderate. Investors should manage expectations for a substantial "pop" on listing day, as the offering appears to be a compliance-driven capital raise rather than a deeply undervalued opportunity.

II. HDB Financial Services: Company & IPO Fundamentals

Company Overview and Business Model

HDB Financial Services Limited (HDBFS) operates as a diversified retail-focused Non-Banking Financial Company (NBFC), with a substantial 94.36% pre-issue stake held by its parent, HDFC Bank.¹ This strong parental affiliation is a critical factor influencing its market perception and operational stability, providing a significant competitive advantage in the dynamic Indian financial landscape.³

The company offers a comprehensive suite of 13 distinct lending products, strategically distributed across three primary business verticals. As of the financial year ended March 31, 2025 (FY25), Enterprise Lending constituted 39.30% of its gross loans, Asset Finance accounted for 38.03%, and Consumer Finance made up the remaining 22.66%.² This diversified product mix and a strategic focus on underbanked segments, coupled with low average ticket sizes, have enabled HDBFS to cultivate a broad and granular customer base, reaching 19.2 million customers by March 31, 2025.² Its extensive distribution network, comprising 1,771 branches spread across 31 states and union territories, with over 80% located outside major metropolitan areas, further solidifies its position as India's second-largest and third fastest-growing NBFC by customer count.² In addition to its core lending operations, HDBFS also provides business process outsourcing (BPO) services to HDFC Bank, contributing 2.44% to its total profit before tax as of March 31, 2025.²

Key IPO Details

The HDB Financial Services IPO is a substantial public offering, aiming to raise ₹12,500 crore, positioning it as India's largest-ever IPO by an NBFC.⁶ This issue is structured as a combination of a fresh issuance of equity shares amounting to ₹2,500 crore and an Offer for Sale (OFS) of ₹10,000 crore by existing shareholders, primarily HDFC Bank.¹

The IPO price band has been set between ₹700 and ₹740 per equity share.¹ For retail investors, the minimum application size is 20 shares, requiring an investment ranging from ₹14,000 to ₹14,800.¹ The bidding window for the IPO is scheduled to open on June 25, 2025, and close on June 27, 2025. Notably, anchor investor bidding will precede this, taking place on June 24, 2025. Allotment of shares is anticipated by June 30, 2025, with the shares expected to list on both the BSE and NSE on July 2, 2025.⁴

Financial Performance Snapshot (FY23-FY25)

HDB Financial Services has demonstrated a consistent upward trajectory in its top-line performance. Revenue witnessed a healthy 15% year-on-year increase in FY25, reaching ₹16,300.28 crore, up from ₹14,171.12 crore in FY24 and ₹12,402.88 crore in FY23.² Operational efficiency, as reflected by EBITDA, also improved, rising to ₹9,512.37 crore in FY25 from ₹8,314.13 crore in FY24.³ The company's net worth surged by 16.68% to ₹14,936.50 crore in FY25, indicating robust internal capital generation.²

However, a notable observation from the financial performance is the divergence between robust revenue growth and a decline in net profitability. While revenue expanded significantly year-on-year, the Profit After Tax (PAT) decreased by 12% in FY25 to ₹2,175.92 crore, down from ₹2,460.84 crore in FY24.² This trend is further underscored by a drop in key efficiency ratios: Return on Equity (ROE) fell to 14.72% in FY25 from 19.55% in FY24, and Return on Assets (ROA) declined to 2.16% in FY25 from 3.03% in FY24.² This pattern suggests that despite strong top-line expansion, underlying factors are impacting the company's net earnings. A closer examination points to a substantial increase in total borrowings, which swelled to ₹87,397.77 crore in FY25 from ₹74,330.67 crore in FY24, underscoring the need for fresh capital to ease debt pressure.³ This rise in borrowings would necessitate higher interest expenses. Additionally, there has been an increase in Gross Stage 3 loans (Non-Performing Assets or NPAs), which stood at 2.26% in FY25, up from 1.90% in FY24, with Net Stage 3 loans also rising to 0.99% from 0.63%.² Such an increase in NPAs would typically require higher provisioning, further impacting the net profit. The diluted Earnings Per Share (EPS) also declined to ₹27.32 in FY25 from ₹31.04 in FY24.² The debt-to-equity ratio rose to 5.85 in FY25, indicating increased leverage.² For investors focused on short-term listing gains, this divergence is a critical consideration. While top-line growth is generally attractive, a decline in net profitability and efficiency ratios can temper market enthusiasm, potentially limiting the magnitude of any listing premium. The market may interpret this as a sign of increasing operational costs or pressures on asset quality, which could lead to a more cautious valuation immediately after listing.

Another important aspect is the strategic necessity behind this IPO, rather than it being solely a growth opportunity. Multiple sources explicitly state that HDB Financial's IPO is a regulatory requirement mandated by the RBI for "Upper Layer NBFCs" to list by September 2025.¹ Concurrently, the fresh issue proceeds are earmarked to "strengthen its Tier-I capital base, supporting future capital requirements and enabling further lending activities".² This dual purpose is important: it is not solely a capital raise for aggressive expansion but also a compliance exercise. The regulatory imperative ensures the IPO will proceed, de-risking the event itself. However, it might also mean the pricing strategy is less aggressive than if the IPO were purely an opportunistic capital raise for maximum valuation. While it enables future growth by strengthening the capital base, the "must-list" factor could potentially cap the "pop" on listing day, as the company is fulfilling a mandate rather than solely capitalizing on peak market conditions.

Table 1: HDB Financial Services Key Financials (FY23-FY25)

Metric	FY23 (₹ Crore)	FY24 (₹ Crore)	FY25 (₹ Crore)
Revenue	12,402.88	14,171.12	16,300.28
Profit After Tax (PAT)	1,959.35	2,460.84	2,175.92
EBITDA	6,251.16	8,314.13	9,512.37
Net Worth	10,436.09	12,802.76	14,936.50
Total Borrowings	54,865.31	74,330.67	87,397.77
Gross Stage 3 Loans (GNPA)	2.73%	1.90%	2.26%
Net Stage 3 Loans (NNPA)	0.95%	0.63%	0.99%
Return on Equity (ROE)	18.68%	19.55%	14.72%
Return on Assets (ROA)	2.97%	3.03%	2.16%
Debt-to-Equity Ratio	5.26	5.81	5.85
Diluted EPS	24.76	31.04	27.32
Net Asset Value (NAV)	144.5	173.3	198.8
Number of Customers (Mn)	12.2	15.8	19.2
Number of Branches	1,492	1,682	1,771
Source: 2

III. Valuation Assessment: IPO Price vs. Fair Value

IPO Price Band Analysis

At the upper end of its price band, set at ₹740 per equity share, HDB Financial Services is projected to achieve a post-issue market capitalization of approximately ₹61,253.30 crore.² To evaluate the fairness of this pricing, it is essential to examine key valuation multiples. Based on its Net Worth of ₹14,936.50 crore as of FY25, the valuation at the upper price band implies a Price-to-Book (P/B) ratio of approximately 3.72x.³ Furthermore, considering a diluted Earnings Per Share (EPS) of ₹27.32 for FY25 ², the implied Price-to-Earnings (P/E) ratio at the upper price band stands at approximately 27.1x.

Pre-IPO Grey Market Premium (GMP) Trends

The Grey Market Premium (GMP) for HDB Financial Services has exhibited considerable fluctuation in the period leading up to the IPO, reflecting dynamic speculative sentiment. On June 21, 2025, the GMP was reported at ₹49, which suggested a potential listing price of ₹789, indicating a 6.62% premium over the upper end of the price band.⁹ Some reports from June 22, 2025, even indicated a higher GMP of over 10%, translating to ₹90, and a potential listing at ₹830, representing a 12% premium.¹ However, more recent information for June 22, 2025, showed a decline in the GMP to ₹43.5 per share, implying a listing at ₹783.5, or a 5.88% premium. This was specifically noted as a drop from ₹91 per share recorded on June 20, 2025.¹⁴ This highlights significant volatility in speculative market sentiment.

This noticeable fluctuation in Grey Market Premium is more than just a numerical change; it signifies a dynamic and somewhat uncertain speculative sentiment leading up to the IPO. A declining GMP suggests that initial high expectations among grey market participants may be moderating, possibly due to a closer look at the company's financials, such as the decline in Profit After Tax, or overall shifts in market conditions. This volatility implies that the "expected" listing premium is not stable and could be subject to further shifts. For short-term investors, this fluctuation signals caution. Relying solely on the highest reported GMP figures could be misleading. While a positive GMP still indicates a likely premium listing, the recent downward trend suggests that the magnitude of the listing gain might be less robust than initially anticipated by the most optimistic speculators. Investors should therefore manage their expectations for a significant "pop" on listing day.

Comparative Valuation with Listed Peers

To assess whether the IPO price appears underpriced, it is essential to compare HDBFS's valuation metrics with those of its listed peers in the NBFC sector. At the upper price band, HDBFS's P/B ratio of 3.72x and P/E ratio of approximately 27.1x can be benchmarked against the following companies (based on FY25 or latest available data):

• Bajaj Finance: P/E 34.00x, P/B ~5.72x ¹¹

• Sundaram Finance: P/E 28.50x, P/B ~4.09x ¹¹

• Cholamandalam Investment & Finance: P/E 31.07x, P/B ~5.58x ¹¹

• Shriram Finance: P/E 13.12x, P/B ~2.18x ¹¹

• L&T Finance: P/E 17.8x, P/B ~1.86x ¹¹

• Mahindra & Mahindra Financial Services: P/E 14.67x, P/B ~1.50x ¹¹

HDBFS's valuation metrics position it below market leaders like Bajaj Finance and Cholamandalam Investment, which command higher multiples due to their perceived premium quality and consistent performance. However, it is priced at a higher valuation than other significant players such as Shriram Finance, L&T Finance, and Mahindra & Mahindra Financial Services.

This comparison indicates that HDB Financial's P/B ratio of 3.72x and P/E ratio of ~27.1x at the upper price band do not suggest a significantly "underpriced" offering when viewed against the broader spectrum of NBFC peers. While it is indeed priced lower than premium players like Bajaj Finance and Cholamandalam Investment, it demands a higher valuation than several other established NBFCs. This suggests a "fairly priced" or slightly premium valuation, likely attributable to its strong parentage and established market position, rather than a deep discount designed to attract massive listing gains. The recent decline in PAT and ROE, as discussed in Section II, could also be a factor preventing a more aggressive valuation. For investors seeking substantial short-term listing gains driven by deep undervaluation, HDB Financial Services might not present that opportunity. The current pricing suggests that much of its inherent value, including its association with HDFC Bank, has already been factored in, which could lead to moderate, rather than spectacular, listing gains.

Analyst Perspectives on Valuation

HDB Financial's CEO, G Ramesh, has publicly stated that the IPO price band is a reflection of the value the enterprise is expected to create in the future.⁹ This perspective suggests a forward-looking valuation rather than a historical one. SBI Securities, a brokerage firm, has expressed a positive outlook, noting that HDB Financial is well-positioned to achieve healthy growth and an improvement in asset quality going forward.¹³ However, some analysts have highlighted potential challenges, pointing out that HDBFS's Return on Assets (ROA) remains modest compared to its peers. Furthermore, concerns exist regarding the potential impact of rising interest rates, tighter RBI regulations for upper-layer NBFCs, and increased competition from both traditional banks and emerging fintech players, all of which could exert pressure on the company's profit margins.² These mixed analyst views underscore the importance of a balanced perspective on the IPO's valuation.

Table 2: HDB Financial Services Valuation Metrics vs. Peers (FY25)

Company Name	P/B Ratio (FY25)	P/E Ratio (FY25)	EPS (FY25)	ROE (FY25)	NAV (FY25)
HDB Financial Services	3.72x	27.1x	₹27.32	14.72%	₹198.8
Bajaj Finance	~5.72x	34.00x	₹26.89	19.35%	₹155.6
Sundaram Finance	~4.09x	28.50x	₹170.53	15.48%	₹1187.8
Cholamandalam Investment & Finance	~5.58x	31.07x	₹50.72	19.71%	₹281.5
Shriram Finance	~2.18x	13.12x	₹50.82	18.17%	₹300.3
L&T Finance	~1.86x	17.8x	₹10.61	10.79%	₹102.5
Mahindra & Mahindra Financial Services	~1.50x	14.67x	₹18.32	10.91%	₹154.9
Source: 2

IV. Market Sentiment and Demand Indicators

IPO Reservation Structure

The HDB Financial Services IPO is structured as a book-built issue, with specific allocations designed to cater to various investor categories. This reservation framework is crucial for understanding the potential demand dynamics for the offering.³

• Qualified Institutional Buyers (QIBs): This segment is allocated not more than 50% of the Net Offer. Specifically, 44.92% of the total issue, amounting to 7,58,78,378 shares, is initially available for QIBs. Any undersubscribed portions from the anchor investor segment would be added to this QIB allocation.³

• Non-Institutional Investors (NIIs/HNIs): This category is reserved not less than 15% of the Net Offer, with 13.48% (2,27,63,514 shares) specifically allocated. This NII portion is further bifurcated: two-thirds are available for bids exceeding ₹10 lakh (bHNI), and one-third for bids ranging between ₹2 lakh and ₹10 lakh (sHNI).³

• Retail Individual Investors (RIIs): Retail investors are allocated not more than 35% of the Net Offer, with 31.44% (5,31,14,865 shares) reserved for them. Retail applications are mandated to be submitted through the Application Supported by Blocked Amount (ASBA) process.³

• Existing Shareholders (HDFC Bank): A dedicated quota of 10.00%, or 1,68,91,892 shares, valued at ₹1,250 crore, has been reserved for existing shareholders of HDFC Bank. This provision allows shareholders of the parent company to bid for HDBFS shares.¹

• Employees: A smaller allocation of 0.16%, representing 2,70,270 shares, is reserved for employees.³

The IPO's reservation structure, with a significant portion allocated to QIBs and a dedicated anchor investor portion, is a key demand signal. QIBs typically conduct extensive due diligence, and their strong participation (oversubscription) is often interpreted by the market as a vote of confidence, which can positively influence retail and NII demand. The fact that anchor investor bidding occurs a day before the main issue means their subscription levels will be known to the public, acting as an early indicator of institutional appetite. Furthermore, the 10% shareholder quota creates a captive demand pool from HDFC Bank's existing investor base, which could provide a baseline for subscription. Robust QIB and anchor investor participation can thus create strong positive momentum, potentially leading to higher overall subscription rates and a better listing performance for short-term investors. Conversely, lukewarm institutional interest could dampen retail enthusiasm and limit listing gains. The shareholder quota adds a layer of built-in demand, which is generally favorable.

Anchor Investor Participation

The Anchor Investor bidding date is set for June 24, 2025, one day prior to the general public subscription opening.¹ The level of subscription achieved in this segment and the caliber of the participating anchor investors (i.e., reputable institutional funds) will serve as a crucial early indicator of institutional confidence and overall demand for the IPO. Strong participation from well-regarded anchor investors often signals a positive outlook for the issue, potentially influencing subsequent retail and Non-Institutional Investor interest.

Book-Building Levels and Subscription Status

As of the available information, the HDB Financial Services IPO has not yet opened for public bidding, which is scheduled to commence on June 25, 2025.¹⁶ Therefore, live subscription figures across the QIB, NII, and Retail categories are not yet available.¹⁶ These figures, once released during the three-day bidding window, will be paramount in gauging real-time investor demand. High oversubscription, particularly in the Qualified Institutional Buyer (QIB) and Non-Institutional Investor (NII) segments, typically signals strong investor interest and can be a precursor to healthy listing gains.

While current subscription levels are unavailable, the degree of oversubscription across all categories, especially QIB and NII, is a direct and powerful predictor of listing day performance. High oversubscription (e.g., 50x, 100x for QIBs, and 30x+ for NIIs) indicates significant unmet demand that will likely spill over into the secondary market on listing day, driving up the opening price. KPMG's analysis for FY25 noted average QIB oversubscription at 102x and retail at 35x ¹⁷, indicating a generally buoyant market where high demand often translates to listing gains. For short-term listing gain investors, actively monitoring the live subscription data during the IPO window is crucial. A highly oversubscribed IPO, particularly in the institutional segments, is a strong positive signal, often outweighing minor fluctuations in Grey Market Premium or other pre-market indicators. This is a real-time gauge of investor appetite that directly impacts immediate price action.

Table 3: HDB Financial Services IPO Reservation Details

Investor Category	Shares Offered	Percentage of Total Issue
Qualified Institutional Buyers (QIB)	7,58,78,378	44.92%
Non-Institutional Investors (NII)	2,27,63,514	13.48%
Retail Individual Investors (RII)	5,31,14,865	31.44%
Existing Shareholders (HDFC Bank)	1,68,91,892	10.00%
Employees	2,70,270	0.16%
Total	16,89,18,919	100.00%
Source: 1

V. Short-Term Catalysts for Listing Gain

Several factors are poised to act as short-term catalysts, potentially contributing to a positive listing gain for HDB Financial Services.

Regulatory Push for Listing

The IPO for HDB Financial Services is not merely a strategic decision but a direct regulatory mandate. HDBFS is classified by the RBI as an "Upper Layer NBFC," which necessitates its listing on stock exchanges by September 2025.¹ This regulatory imperative removes any uncertainty regarding the IPO's occurrence, ensuring that the offering will proceed as planned and eliminating risks related to its timing or potential withdrawal. This provides a strong foundational assurance for the IPO's successful launch. While it might not guarantee an explosive listing gain, as the timing is partly compliance-driven rather than purely opportunistic, it significantly de-risks the IPO process itself, making it a more predictable event for short-term investors.

Strong Parentage and Brand Trust (HDFC Bank)

HDB Financial Services benefits immensely from its deep association with HDFC Bank, which holds a substantial 94.36% stake in the subsidiary prior to the IPO.¹ This strong parentage provides a robust brand, instills significant trust among investors, and offers strategic support, granting HDBFS a considerable competitive advantage within the highly competitive NBFC sector.³ The performance of HDFC Bank itself further amplifies this positive sentiment; its stock has shown robust performance, hitting a fresh lifetime high of ₹1,882.05 in April 2025 and recording a 5% gain in Calendar Year 2025, even as the broader Sensex declined by 2%.¹⁸ Leading brokerage firms, including Goldman Sachs and Ventura Securities, have maintained 'buy' ratings on HDFC Bank with attractive target prices, signaling continued confidence in the parent entity.¹⁸

HDFC Bank's strong market performance, including hitting lifetime highs and receiving positive analyst ratings, is highly relevant. As HDB Financial Services is a nearly wholly-owned subsidiary, investors often perceive it as an extension of HDFC Bank's quality and stability. The parent's robust performance and market confidence can create a "halo effect" for the subsidiary, implying strong governance, access to capital, and a reliable brand. This perceived quality can attract investors, especially those looking for short-term gains, who might view HDBFS as a safer bet due to its lineage. The positive sentiment surrounding HDFC Bank can thus translate into increased investor confidence and demand for HDB Financial's IPO, potentially contributing to a healthy listing premium. This "parentage premium" could be a significant driver for short-term gains, potentially offsetting some of the concerns arising from HDBFS's recent internal financial metrics.

Favorable Sectoral Tailwinds in Indian Financial Services

The broader Indian economy and financial markets are supported by strong domestic demand, favorable demographics, ongoing digitalization, and rising middle-class consumption, which collectively limit downside risks to economic growth.¹⁹ India's long-term growth potential is projected to hover around 6.5%, with aspirations to become the third-largest economy by 2029.¹⁹ The Reserve Bank of India (RBI) is anticipated to implement interest rate cuts, with a 25 basis point reduction expected in February 2025 (and a total of 50 basis points in the current rate cut cycle). Such cuts are expected to lead to lower yields and capital appreciation for bond prices, which generally benefits financial institutions.¹⁹

The financial services sector in India has demonstrated resilience, experiencing only a 4% decline in FY25 amidst broader market sell-offs. This resilience suggests a potential shift of Foreign Institutional Investor (FII) interest towards domestic-oriented sectors, including financial services.²⁰ Furthermore, the NBFC industry is poised for rapid expansion, with credit growth projected to achieve a Compound Annual Growth Rate (CAGR) of 15-17% between FY24 and FY27, largely driven by surging retail credit.³ RBI interventions are also set to enhance liquidity within the banking system, with the Weighted Average Call Rate (WACR) comfortably below the repo rate, signaling a surplus of liquidity.²⁰

While the strong sectoral momentum provides a positive backdrop, HDB Financial's specific profitability and asset quality trends might temper the extent of listing gains. For example, despite the positive macro environment, the company reported a 12% decline in Profit After Tax and an increase in Gross Stage 3 loans (NPAs) in FY25.² Short-term investors will need to balance the attractive macro story with the company's recent operational challenges. The market's interpretation of these mixed signals will ultimately determine the listing performance.

Strategic Use of IPO Proceeds

The ₹2,500 crore raised from the fresh issue component of the IPO is strategically earmarked to strengthen HDB Financial's Tier-I capital base.² This capital infusion is crucial for several reasons: it will enable the company to meet future capital requirements, support onward lending activities, and fuel further expansion of its loan book. This clear articulation of how the funds will be utilized signals a well-defined growth strategy post-listing, which can instill confidence among investors looking for companies with clear paths to expansion.

VI. Listing Day Risks and Volatility

While the HDB Financial Services IPO presents potential for short-term gains, several risks and volatility factors warrant careful consideration, particularly for investors focused on listing day performance.

General IPO Listing Day Volatility

Indian IPO listing days are often characterized by "sharp movements in price in either direction".²¹ The opening price of a newly listed stock is determined during a pre-open session, typically occurring between 9:00 AM and 10:00 AM IST, with continuous trading commencing at 10:00 AM IST.²¹ The actual listing price is influenced by several factors, including the level of investor demand observed during the IPO subscription period, the initial issue price, prevailing market conditions (where bullish trends can drive prices higher, and bearish conditions may lead to a lower debut), and the Grey Market Premium (GMP).²² The inherent nature of IPO listings means that price discovery can be volatile, and initial enthusiasm can quickly shift.

Impact of Lock-in Periods

Lock-in periods are regulatory measures designed to prevent a sudden influx of shares into the market immediately after listing, thereby promoting price stability.²³ For HDB Financial Services, these periods apply to different investor categories:

• Anchor Investors: A significant portion of shares allotted to anchor investors is subject to staggered lock-in periods. 50% of their shares are locked for 30 days, while the remaining 50% are locked for 90 days following the actual allotment date.⁴ This structure aims to prevent an immediate oversupply of shares post-listing.

• Promoters: For promoters, such as HDFC Bank, shares constituting up to 20% of the post-issue paid-up capital are subject to an 18-month lock-in period. Any shares held by promoters exceeding this 20% threshold have a shorter 6-month lock-in period.²³ Given HDFC Bank's substantial pre-issue stake of 94.36%, a significant portion of its holding will remain locked, preventing immediate large-scale selling.

• Non-Promoters: Other non-promoter shares are subject to a 6-month lock-in period.²³

The staggered lock-in periods for anchor investors and the longer lock-ins for promoters and other non-promoters are explicitly designed to prevent an immediate oversupply of shares. This regulatory measure aims to provide initial price stability. However, the very existence of these lock-ins implies a potential for increased selling pressure, often referred to as "Post-lock-up Volatility," once these periods expire.²³ For a short-term listing gain strategy, the immediate post-listing period (first few weeks) might be relatively insulated from large institutional sell-offs. However, investors planning to hold beyond the initial 30-day window should be mindful of the potential for increased supply and corresponding price volatility as anchor investor lock-ins expire. This reinforces the importance of a truly

short-term horizon for this investment if the primary goal is to capitalize on initial listing gains.

Company-Specific Risks

Several company-specific risks could influence HDB Financial Services' listing performance:

• Deterioration in Asset Quality: The company's Gross Stage 3 loans (NPAs) increased to 2.26% as of March 31, 2025, up from 1.90% a year prior.² Any further increase in customer defaults, or insufficient provisioning for non-performing assets, could negatively impact the company's financial condition and investor confidence.⁹

• High Leverage: HDBFS's debt-to-equity ratio rose to 5.85 in FY25.² This high leverage exposes the company to increased risks from potential interest rate hikes or shifts in market liquidity, which could raise borrowing costs and impact profitability.⁷

• Profitability Pressure: The 12% decline in Profit After Tax (PAT) in FY25 ⁸, coupled with a decline in Net Interest Margin (NIM) from 8.25% in FY23 to 7.56% in FY25 ², indicates potential pressure on overall profitability. This trend could temper investor sentiment and limit upside potential.

• Regulatory Burden: Recent policy shifts by the government and the RBI signal an increasing regulatory burden for NBFCs. Such changes may impact HDBFS's operating flexibility and potentially increase its cost structure, affecting its overall financial performance.²

• Unsecured Loan Risk: While 73.01% of HDBFS's gross loans are secured, a significant 26.99% are unsecured.⁵ Unsecured loans inherently carry a higher risk of default as they are not backed by any collateral, making recovery more challenging in the event of non-payment by borrowers.⁵

The interplay of asset quality, leverage, and profitability is a critical concern. The increase in Gross Stage 3 loans, coupled with a rising debt-to-equity ratio and a declining Net Interest Margin, creates a negative feedback loop on profitability. Higher NPAs typically lead to increased provisioning, while higher leverage means greater interest expenses. A declining NIM suggests either the cost of funds is rising faster than lending rates, or competitive pressures are compressing yields. The 12% PAT decline is a direct manifestation of these combined pressures. These interconnected financial risks indicate fundamental challenges that could cap the upside for short-term listing gains. While market sentiment might initially be buoyed by positive factors, these underlying financial pressures could lead to profit-booking by early investors or a muted post-listing performance, especially if the initial listing gain is not substantial enough to justify holding through these risks.

Broader Macroeconomic and Market Uncertainties

Despite a generally positive outlook for the Indian economy, global economic uncertainties and geopolitical factors can influence overall market sentiment and investor behavior.² While the India VIX, often referred to as the "fear index," has remained relatively calm, oscillating between 12 and 16 in 2025, sharp spikes in Implied Volatility (IV) have been observed around major events. These include RBI policy meetings, Union Budget announcements, and quarterly earnings releases.²⁴ Such macro and event-driven factors can introduce sudden, unpredictable volatility on listing day or shortly thereafter, impacting short-term price movements.

VII. Comparable Recent IPOs in the Indian Finance Sector

Overview of the Indian IPO Market (2024-2025)

The Indian IPO market has demonstrated remarkable buoyancy in the recent past, with India solidifying its position as the busiest IPO market globally by deal count in 2024. The country recorded 338 IPO deals, representing a substantial 44% increase compared to 2023, and IPO proceeds nearly tripled to US$20.99 billion.²⁵ In FY25, India witnessed 80 mainboard IPOs, collectively raising INR 1,630 billion, a significant increase from the previous fiscal year. The average oversubscription rates for Qualified Institutional Buyers (QIBs) and retail investors rose to an impressive 102x and 35x, respectively, indicating robust investor appetite.¹⁷

While the financial services sector specifically saw listing-day gains, the average percentage for the sector as a whole is not explicitly detailed. However, a notable trend observed was that smaller IPOs (issue size less than INR 2 billion) generally outperformed larger ones (issue size greater than INR 50 billion) in terms of listing-day gains, averaging 37% versus 29%.¹⁷ Given that HDB Financial Services' IPO aims to raise ₹12,500 crore, it falls squarely into the "larger IPO" category, suggesting that its potential for extreme listing pops might be tempered compared to smaller issues.

Select Recent Indian Finance Sector IPO Listing Performance (2024-2025)

The performance of recent finance sector IPOs in India has been highly mixed, underscoring that while the broader market is robust, company-specific factors are paramount. There is no guarantee of listing gains, with some major finance IPOs experiencing significant losses.

Table 4: Select Recent Indian Finance Sector IPO Listing Performance (2024-2025)

Company Name	Sector	Listing Date	Issue Price (₹)	Listing Price (LTP) (₹)	Listing Gain/Loss (%)
Bajaj Housing Finance	NBFC	Sep 16, 2024	70.00	119.03	70.0%
Niva Bupa Health Insurance Company	Insurance	Nov 14, 2024	74.00	81.74	10.5%
Manba Finance	NBFC	Sep 30, 2024	120.00	138.50	15.4%
EMA Partners India Ltd (SME)	Finance	Jan 24, 2025	117-124	104	26.2%
My Mudra Fincorp Ltd (SME)	Finance	Sep 12, 2024	104-110	80	18.2%
Dar Credit & Capital Ltd (SME)	Finance	May 28, 2025	57-60	52	8.6%
Mobikwik	Fintech	Dec 18, 2024	279.00	236.65	-15.2%
Northern ARC Capital	NBFC	Sep 24, 2024	263.00	230.24	-12.5%
Akme Fintrade India	NBFC	Jun 26, 2024	120.00	7.58	-93.7%
Source: 26

Lessons Learned from Comparables

The overall Indian IPO market has been exceptionally strong in 2024-2025, with India leading globally in deal count and funds raised. However, the performance within the finance sector itself is highly varied, as evidenced by the table above. This indicates that a rising tide does not lift all boats equally, and investors cannot simply rely on the general market buoyancy but must scrutinize the individual company's fundamentals and specific market reception. The fact that HDB Financial is a "larger IPO" (₹12,500 crore) means it falls into a category that, on average, yielded lower listing gains (29%) compared to smaller IPOs (37%) in FY25.¹⁷ This suggests that while the overall market sentiment is positive, investors should temper expectations for exceptionally high listing gains for HDB Financial Services based solely on broad market trends. The mixed performance of comparable finance sector IPOs underscores that company-specific factors and the precise market dynamics at the time of listing will be more influential than the general IPO boom.

A crucial observation from the comparable IPOs is the strong listing performance of Bajaj Housing Finance, which recorded a 70% gain. As a subsidiary of a well-regarded financial conglomerate, this provides a direct parallel to HDB Financial Services' relationship with HDFC Bank. In the financial sector, where trust, stability, and access to capital are paramount, the backing of a strong and reputable parent like HDFC Bank is a significant advantage. This "parentage premium" can instill greater investor confidence. This suggests that HDB Financial's strong association with HDFC Bank could be a crucial positive catalyst for its listing performance, potentially mitigating some of the concerns arising from its recent internal financial metrics, such as the decline in PAT and rising NPAs. This factor could be a key driver for attracting demand and securing a respectable, if not spectacular, listing gain.

VIII. Conclusion and Recommendation for Short-Term Listing Gain

The HDB Financial Services IPO presents a nuanced opportunity for investors targeting short-term listing gains. The offering is underpinned by several strong catalysts: a clear regulatory mandate from the RBI ensuring the IPO's execution, the substantial brand trust and strategic support derived from its parent, HDFC Bank, and favorable macroeconomic tailwinds for the Indian financial services sector, including anticipated interest rate cuts and robust credit growth projections. The strategic allocation of fresh issue proceeds to bolster Tier-I capital further supports future lending and growth.

However, these positive factors are balanced by notable risks. The company's recent financial performance shows a concerning 12% decline in Profit After Tax (PAT) in FY25, coupled with an increase in Gross Stage 3 loans (NPAs) and a rising debt-to-equity ratio. These interconnected financial pressures on profitability and asset quality could temper investor enthusiasm. Furthermore, the IPO's valuation, with a P/B ratio of approximately 3.72x and a P/E ratio of around 27.1x at the upper price band, positions it as fairly priced relative to its peers, rather than significantly undervalued. The fluctuating Grey Market Premium (GMP) also indicates a dynamic and somewhat uncertain speculative sentiment, suggesting that initial high expectations may have moderated.

Lessons from comparable recent IPOs in the Indian finance sector reveal a mixed bag of listing performances. While some, like Bajaj Housing Finance, achieved substantial gains, others, including Mobikwik and Northern ARC Capital, experienced significant listing losses. This underscores that despite a generally buoyant IPO market, company-specific fundamentals and market dynamics at the time of listing are paramount. HDBFS's large issue size also places it in a category that has historically seen more moderate listing gains compared to smaller IPOs.

Recommendation for Short-Term Listing Gain:

Considering the comprehensive analysis, it is recommended to Subscribe with a view for Moderate Listing Gains.

While the strong parentage of HDFC Bank and the positive sectoral outlook provide a solid foundation for a premium listing, the recent decline in HDBFS's net profitability and the increase in its non-performing assets, combined with a valuation that appears to be fair rather than deeply discounted, suggest that the magnitude of listing gains may be constrained. The regulatory compulsion behind the IPO ensures its successful launch but may also limit the potential for an aggressive "pop" often seen in opportunistic offerings. Investors should manage their expectations for immediate, substantial returns and be prepared for potentially moderate listing day performance.