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 subsidiary of HDFC Bank, has reported substantial utilization of the funds raised through its Initial Public Offering (IPO) conducted earlier this year. According to the monitoring agency report submitted for the quarter ended September 30, 2025, the company has efficiently deployed 98.26% of the fresh issue proceeds.

IPO Proceeds Utilization

The company's IPO, which took place from June 27-29, 2025, comprised a fresh issue of Rs 2,500 crore and an offer for sale of Rs 10,000 crore, totaling Rs 12,500 crore. CARE Ratings Limited, serving as the monitoring agency, has confirmed that there were no deviations from the stated objectives in the utilization of funds.

Fund Allocation

The proceeds from the fresh issue have been primarily used to augment the company's Tier-I capital base, aimed at meeting future capital requirements for onward lending across various business verticals:

• Enterprise Lending
• Asset Finance
• Consumer Finance

Remaining Funds

Of the unutilized portion:

• Rs 2.00 crore remains held in escrow by book running lead managers, pending confirmation of final offer expenses.
• Rs 41.38 crore allocated for offer expenses remains unutilized in the escrow account.

Compliance and Oversight

The monitoring agency has confirmed that all utilization of funds has been in accordance with the disclosures made in the offer document. This adherence to stated objectives demonstrates HDB Financial Services' commitment to transparent and responsible fund management.

Future Outlook

With nearly all of the IPO proceeds now deployed, HDB Financial Services is well-positioned to leverage its strengthened capital base for growth across its key lending segments. The efficient utilization of funds within months of the IPO suggests a strong pipeline of lending opportunities and a clear strategy for capital deployment.

Investors and market observers will likely keep a close watch on how this capital infusion translates into business growth and financial performance in the coming quarters.