ICICI Securities has initiated coverage on HDB Financial Services with a BUY recommendation and a target price of Rs 900, implying an upside potential of approximately 34% from the current market price of Rs 671. The brokerage views HDB Financial as one of India’s most strategically positioned non-banking financial companies (NBFCs), supported by strong parentage from HDFC Bank, a diversified lending portfolio, and a powerful distribution network across underserved rural markets. With assets under management exceeding Rs 1 trillion, a decade-long credit cost average of roughly 2%, and expected AUM and PAT CAGRs of 18% and 25% respectively through FY28, the company is positioned as a high-quality proxy for India’s long-term credit growth story.

ICICI Securities Initiates Coverage: A Premium NBFC Backed by HDFC Bank

ICICI Securities has formally initiated coverage on HDB Financial Services with a BUY rating and a target price of Rs 900.

The brokerage believes the company represents one of the most compelling investment opportunities in India’s NBFC sector due to its combination of low borrowing costs, diversified lending verticals, and deep rural penetration.

HDB Financial Services benefits significantly from its strategic association with HDFC Bank, which provides:

Strong brand credibility

Access to competitive funding markets

Institutional-grade risk management practices

This backing has allowed the company to build a robust retail credit franchise with assets exceeding Rs 1 trillion as of FY25. The company has also demonstrated strong operational execution, delivering over 20% AUM CAGR between FY14 and FY25, despite multiple credit cycles and macroeconomic disruptions.

Investment Thesis: A High-Growth Proxy for India’s Expanding Credit Market

ICICI Securities views HDB Financial Services as a structural beneficiary of India’s expanding retail credit ecosystem.

Several structural advantages support this view:

Pan-India branch network reaching underserved markets

Strong customer sourcing model, with over 80% of disbursements coming directly from customers

Diversified loan portfolio across 13 lending products

High exposure to self-employed and MSME borrowers

Notably, approximately 70% of the company’s branches are located in tier-4 and smaller towns, enabling the lender to tap credit demand from segments that traditional banks often overlook.

The company currently serves around 22 million customers, with an average ticket size of approximately Rs 164,000, among the lowest in the retail NBFC space — an indicator of its granular and diversified customer base.

Financial Growth Outlook: Strong Earnings and Asset Expansion Ahead

ICICI Securities expects HDB Financial Services to maintain a strong growth trajectory through FY28.

Key financial projections include:

The brokerage forecasts:

AUM CAGR: ~18% between FY26–FY28

PAT CAGR: ~25% during the same period

Return on Equity: expected to rise to ~16% by FY28

Improving asset quality and easing credit costs are expected to play a key role in driving profitability expansion.

Diversified Lending Engine Driving Sustainable Growth

HDB Financial Services operates through three major lending verticals, each targeting a distinct borrower segment.

Enterprise Lending primarily serves small businesses and self-employed professionals, often backed by property collateral.

Asset Finance focuses on income-generating assets such as commercial vehicles and equipment, supporting entrepreneurs and transport operators.

Consumer Finance has emerged as the fastest-growing vertical, driven by demand for consumer durables, personal loans, and vehicle financing.

Competitive Edge: Lowest Cost of Funds Among NBFC Peers

A defining advantage for HDB Financial Services is its low cost of borrowing, supported by its AAA credit rating and HDFC Bank affiliation.

As of December 2025:

HDB Financial cost of funds: ~7.4%

Bajaj Finance: ~7.5%

Tata Capital: ~7.5%

Cholamandalam Finance: ~7.6%

Shriram Finance: ~8.7%

Lower funding costs allow the company to maintain strong pricing power and competitive lending rates, reinforcing its market position.

Asset Quality and Risk Management: A Decade-Long Track Record

Risk discipline has been a defining feature of HDB Financial Services’ operating model.

Over the past decade:

Average credit cost: ~2%

Gross Stage-3 assets: ~2.3% in FY25

Risk management practices have remained consistent across cycles.

Even during the pandemic, the company recorded only a temporary dip in profitability, with FY21 being the only year where ROE dropped significantly to 5%.

Otherwise, the company has delivered a cross-cycle ROE of roughly 15%, demonstrating operational resilience across economic cycles.

Valuation Framework: Why ICICI Securities Sees Upside

ICICI Securities values HDB Financial Services using a Price-to-Book (P/BV) multiple framework.

The brokerage applies:

3x P/BV on September 2027 estimated book value

This valuation reflects:

Strong growth visibility

High-quality parentage

Proven credit underwriting

While top NBFCs like Bajaj Finance and Cholamandalam Finance often trade above 3x P/BV, ICICI Securities applies a modest discount due to HDB’s slightly lower historical ROE profile.

Nevertheless, the firm believes improving profitability and asset growth justify a premium valuation multiple.

Investment View: Positioned for Long-Term Shareholder Value Creation

Looking ahead, ICICI Securities believes HDB Financial Services is entering a favorable phase of growth supported by:

Key catalysts:

Recovery in commercial vehicle financing cycle

Stabilization in unsecured business loan stress

Expansion in consumer finance products

Continued penetration into rural and semi-urban markets

With strong fundamentals, improving asset quality, and structural growth tailwinds in India’s retail credit market, the brokerage expects the company to deliver sustained shareholder value over the long term.

Target Price: Rs 900
Current Market Price: Rs 671
Upside Potential: ~34%
Recommendation: BUY