A well established, growing NBFC(Non-banking Financial Company) with a stellar parent, the firm continues to diversify its offerings and itsprofits continue to grow at a healthy pace.
AboutHDBFS
HDB Financial Services is an NBFC and a subsidiary of HDFC Bank. The company was incorporated in June 2007 and commenced its lending operations in March 2008.
Roughly Rs 54,700 crores in loans are spread across three major segments namely consumer loans, enterprise loans and asset finance.
Asset financing, which includes commercial vehicle, commercial equipment and tractor loans, made up 41 %of the company’s loan book in the last financial year and growing asset finance book by 50-60% year-on-year to build a more diversified loan book.
The loans-against-property segment was the second-highest contributor to HDB Financial’s total loan book at 34%. Unsecured business loans and other secured loans make up the rest of the book. The overall quality of the loan book remaining strong, with more than Rs 41,000 cr worth loans backed by mortgage or other assets.
The company operates through a network of 1165 branches, located in 831 cities and towns across the country. The company is a corporate agent for HDFC Standard Life Insurance Company and HDFC Ergo General Insurance and distributes their insurance products. All bank facilities are AAA rated by credit rating agencies(Care and Crisil )
The company benefits from HDFC’s nationwide presence, network, brand recognition, and has the advantage of leveraging the expertise of the bank’s senior management who are represented on the board of HDBFS. Based on FY20 growth estimates, HDB Financial would account for 6 % of HDFC Bank’s $91 billion market capitalisation, which works out to a valuation of about $5.5 billion.
An Outlook for the NBFC Industry
The NBFC sector is a fast growing part of the Indian financial ecospace and is seen as stable although the 2018 liquidity crisis has hurt several firms. Scheduled commercial banks continue to be the dominant players in this field, accounting for nearly 47% of the exposure followed by asset management companies, insurance companies, housing finance companies and other financial institutions.
The union budget intends to review the refinancing policy and eligibility criteria set by MUDRA(Micro Units Development and Refinance Agency) for better refinancing of NBFCs and has set a target of Rs 3 lakh Cr for lending under MUDRA for 2018-19.
The NBFC niche in certain asset classes and their ability to customize products, price the risk, and manage credit costs will allow them to continue gaining market share in the lending space.
Liquidity
HDBFS's asset liability management(ALM) profile has minor cumulative mismatches in the upto one year bucket. The company has upcoming repayments of Rs.10411.57 crore(including Rs.1600 crore of commercial papers) over the next 4 months till September 30, 2019. Against this, the company has adequate has liquidity in the form of underutilized bank lines amounting to Rs.4550 cr and liquid investments of Rs 565.73 cr as on March 31, 2019. Apart from this the company's liquidity is further cushioned by healthy inflows from assets, option to securitise loans and funding support from HDFC Bank, if required.(Source:Crisil Report)
Key Risks for HDB
Overall asset quality remains adequate, though gross NPAs have risen to 1.78% as on March 31, 2019, compared to 1.58% as on March 31, 2018.. Strong loan origination and credit underwriting practices, with a focus on risk management systems, help mitigate asset quality risks.
However, the loan book has grown by nearly 40% in compounded terms over the past five years. The unsecured loans segment(business loans) have grown at higher rate, and constituted around 21% of the overall portfolio as on March 31, 2019.
Given the high growth, its portfolio is yet to be fully tested across economic cycles. The company's ability to manage asset quality across cycles or sector-specific issues will have to be monitored over the medium term.
tl;dr
About HDBFS
An Outlook for the NBFC Industry
Liquidity
Key Risks for HDB
Company Financials