HDB Financial Services , a subsidiary of HDFC Bank, reported mixed financial results for the second quarter, with shares opening lower and falling below their initial public offering (IPO) price.

Financial Performance

The non-banking finance company (NBFC) saw its profit after tax decline by 1.70% year-on-year to ₹581.00 crore for Q2, missing analyst estimates. This decrease was primarily attributed to higher provisions, which pushed the credit costs to 2.70% - the highest level since the COVID-19 pandemic.

Despite the profit decline, HDB Financial Services demonstrated strong growth in other key metrics:

• Net interest income grew by 20.00% to ₹2,192.00 crore
• Net interest margin improved by 20 basis points to 7.90%
• Pre-provision operating profit surged 24.00% to ₹1,530.00 crore

Loan Book and Asset Quality

The company's loan book expanded by 13.00% year-on-year, reaching ₹1,11,409.00 crore. However, disbursements remained flat compared to the same period last year.

Asset quality showed some signs of stress:

• Gross Stage 3 loans increased to 2.81% from 2.10% a year ago
• Net Stage 3 loans rose to 1.27% from 0.83% in the previous year
• Provision coverage ratio on stage 3 assets declined to 54.73% from 60.69% a year earlier

Segment Performance

HDB Financial Services operates through three main business verticals:

1. Enterprise Lending: 38.00% of total gross loans
2. Asset Finance: 38.00% of total gross loans
3. Consumer Finance: 24.00% of total gross loans

Management Outlook

The company's management expects credit costs to moderate to 2.20% and has set a target of 18-20% loan growth over the next 3-5 years.

Analyst Views

• Morgan Stanley maintains an 'Equalweight' rating with a target price of ₹805.00
• Jefferies has a 'Buy' rating with a target price of ₹900.00

Dividend Announcement

The Board of Directors has declared an interim dividend of ₹2.00 per share (20.00% on face value).

While HDB Financial Services continues to show growth in its loan book and net interest income, the increase in provisions and decline in profit have raised some concerns among investors. The company's ability to manage asset quality and moderate credit costs will be crucial for its performance in the coming quarters.

HDB Financial Services , a prominent player in the financial services sector, has announced its second-quarter results, revealing a mixed performance. The company has also declared an interim dividend, signaling confidence in its financial position despite some challenges.

Financial Performance

HDB Financial Services reported a quarterly revenue of ₹45.45 billion, marking a significant increase from ₹40.00 billion in the same period last year. This 13.63% year-over-year growth demonstrates the company's ability to expand its business operations and capture market opportunities.

However, the company's bottom line showed a slight decline. Net profit for the quarter stood at ₹5.81 billion, down from ₹5.91 billion in the corresponding period of the previous year, representing a marginal decrease of 1.69%.

Key Financial Metrics

Asset Quality

The gross stage 3 ratio, an indicator of non-performing assets, increased to 2.81% from 2.56% quarter-over-quarter. This rise suggests a slight deterioration in asset quality, which could be a point of concern for investors and analysts.

Interim Dividend

HDB Financial Services has declared an interim dividend of ₹2.00 per share. This decision to distribute profits, despite the marginal decline in net profit, could be seen as a sign of the management's confidence in the company's financial stability and future prospects.

Employee Stock Options

The company has also announced significant employee stock option grants:

• 15,10,520 options under ESOP Plan 18A
• 9,71,980 options under ESOP Plan 18B
• 9,63,670 options under ESOP Plan 18C

All options were granted at a price of ₹739.85 per share, based on the closing price on October 13, 2025.

Outlook

While HDB Financial Services has shown strong revenue growth, the slight dip in profitability and increase in the gross stage 3 ratio may warrant careful monitoring. The company's decision to grant ESOPs and declare an interim dividend suggests confidence in its long-term prospects, but investors may want to keep an eye on asset quality trends and profitability metrics in future reports.

As the financial services sector continues to evolve, HDB Financial Services' ability to maintain its growth trajectory while managing asset quality will be crucial for its future performance.