Motilal Oswal has initiated coverage on newly listed non-banking firm HDB Financial Services Ltd with a ‘neutral’ rating and a target price of ₹860, suggesting a 9% potential upside. The brokerage expects the company to deliver high-teens growth in assets under management (AUM) over the next few years. However, it noted that current valuations already reflect medium-term growth expectations, and it awaits stronger execution in loan growth, better handling of industry/product cycles, and sustainable improvements in return ratios.
Supported by HDFC Bank’s institutional strength and an experienced leadership team, HDB is projected to achieve a 19% AUM CAGR between FY25-28, along with improved RoAs, while maintaining governance standards and asset quality. The firm stands to gain from a declining interest rate environment, as 77% of its loan book is at fixed rates and 33% of its borrowings are on floating rates. Its AAA rating has already begun reducing its incremental cost of funds, supporting NIM expansion in FY26. Though credit costs rose recently due to macro pressures and stress in CV and unsecured loans, signs of recovery are emerging.