HDB Financial Services Limited has become overvalued now- 27.03.2019

Financial of the Company

Year Rev(Cr) PAT(Cr) AUM EPS Book Value
2014 1,688.27 209.24 13560 4.32 31.70
2015 2,527.26 349.45 19290 6.63 44.68
2016 3,302.02 534.41 25906 7.64 50.87
2017 5714.54 698.77 34277 9.64 68.73
2018 7061.99 951.74 44469 12.18 79.22


UZ Financial Review

1. The Company has shown excellent Revenue Growth of  43% in the last 5 years.

2. The Company has shown excellent PAT Growth of  46% in the last 5 years.

3. The Company has excellent growth of AUM( Asset Under Management). As on 31st March 2018, they have close to 45000 Cr of the loan book.

4. The Company is paying good dividends. This year they have given 9% dividend per share on FV=10.

5. The ratio of Gross non-performing assets to gross advances and net non-performing stands at 1.58% and 0.96% as on 31st March 2018. The company has a manageable NPAs level.

Valuation of the Company

The company has listed peer in the name of Bajaj Finance Let us see do the comparison and arrives at the fair value of HDB Financial Services. The comparison has done by taking FY18 Financials.

a) Bajaj Finance:

Mcap = 169,367.86 Cr.

2. Book Value = 287.

3. Price = 2930.

4. P/B = 10.20

5. Revenue= 13000 Cr.

6. Revenue Growth of last 5 years = 34.84%

7. PAT Growth of last 5 years = 38.50%

b) HDB Financial Services Limited:

1. Revenue = 7000 Cr

2. Revenue Growth in the last 5 years = 43%

3. Book Value = 79.22

4. PAT growth in last 5 years = 46%

If we give the same valuation in terms of P/B of 10 to HDB Financial Services as in the case of Bajaj Finance, the Fair value as per FY18 Financials for HDB Financial Services comes out to be around 790-800 per Share.

At this price, the HDB Financial Services commands a Mcap of 62000 Cr.

UZ View:

Recently in the last few weeks, we have observed that the price of HDB Financial Services has shot up like anything from 880 to 980 level in the anticipation of Right Issue coming. However, in the interest of the Investor community, we at UnlistedZone strongly believe the CMP of HDB is too high for an investor to buy.  

Even the HDFC Bank which is listed company is trading at P/B of 5.7.

The HDB Financial Services at the Current Market Price is Overvalued.