HDFC Bank Stock Gains as Board Approves HDB Financial Services IPO Proposal

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HDFC Bank Stock Gains as Board Approves HDB Financial Services IPO Proposal

. The board granted in-principle approval to launch an initial public offering (IPO) for its non-banking financial subsidiary, HDB Financial Services

September 23rd, 2024 News

HDFC Bank's stock experienced a slight uptick, rising nearly 1% to ₹1,754 per share on September 23, following an important announcement from the bank's board. The board granted in-principle approval to launch an initial public offering (IPO) for its non-banking financial subsidiary, HDB Financial Services. The IPO will consist of a fresh equity issue of ₹2,500 crore, in addition to an offer-for-sale (OFS) allowing existing shareholders to divest their stakes.

Key Highlights:

IPO Structure: The IPO will combine a ₹2,500 crore fresh equity issuance with an OFS component for current shareholders.
Valuation Expectations: Reports suggest that the IPO could bring in a valuation between $7–8 billion, with the listing potentially occurring by December 2024 or the end of the fiscal year.
Banker Selection: HDFC Bank is currently in the process of selecting underwriters for the IPO. Morgan Stanley, Bank of America, Nomura, and domestic firms like ICICI Securities, Axis Capital, and IIFL have been shortlisted.

This IPO comes as a regulatory requirement following the Reserve Bank of India’s October 2022 directive, which categorizes HDB Financial Services under the Upper Layer NBFC category. This move follows the successful listing of Bajaj Housing Finance, which recently surpassed a market capitalization of ₹1.4 lakh crore.

About HDB Financial Services

HDB Financial Services is one of India’s leading non-banking financial companies, primarily focused on providing a wide range of financial services to retail and commercial clients. Its product offerings include secured and unsecured lending, asset finance, consumer loans, and loans against property.

For FY23, HDB Financial Services reported a 17% year-on-year growth in its loan portfolio, reaching approximately ₹66,000 crore. This growth was primarily driven by increased demand for personal loans, vehicle loans, and small business financing.

HDFC Bank Financial Performance

While HDFC Bank prepares to list its financial services arm, the bank itself reported a net profit of ₹16,175 crore in the first quarter of FY25. However, this represented a 2% dip compared to the previous quarter’s ₹16,511.9 crore. The bank’s net interest income also saw a modest increase of 2.6% over the same period.

Key Takeaways:

IPO Greenlight: HDB Financial Services IPO gains approval from HDFC Bank's board, involving a ₹2,500 crore equity issue and an OFS.
Valuation: The IPO is expected to fetch a valuation of around $7–8 billion.
Banker Selection: HDFC Bank is finalizing IPO bankers, with Morgan Stanley, ICICI Securities, and others in the running.
Regulatory Requirement: The IPO is aligned with RBI regulations for NBFCs in the Upper Layer category.
Growth Story: HDB Financial's loan book surged 17% in FY23, reaching ₹66,000 crore.

The approval for the HDB Financial Services IPO sets the stage for another major listing in India's financial services sector, adding to HDFC Bank’s strategic growth plans.