HDB Financial IPO: Should You Apply or Skip?

Summary

HDB Financial's IPO is attracting attention, but many investors are dissatisfied with its pricing. The IPO is priced at ₹740, while the unlisted stock was trading above ₹1200, leaving investors who bought unlisted shares facing losses. The video discusses the differences between HDFC and its subsidiary HDB Financial, with a focus on HDB's advantages over banks, such as fewer regulatory constraints and lower costs. The video warns against overhyped unlisted stocks and recommends sticking to established companies. It advises waiting for the market to value the IPO before making any decisions and introduces a curated list of 30 quality stocks to consider.

Takeaways

• 😀 The IPO price of HDB Financial is set at ₹740, significantly lower than its unlisted market price, which had been running above ₹1200.
• 😀 Unlisted investors who bought at inflated prices are likely to face losses or just break-even even with a strong listing gain.
• 😀 Unlisted stocks are risky due to lack of regulation and inflated valuations, which often lead to financial losses for investors.
• 😀 HDFC Bank and HDB Financial serve different purposes: HDFC focuses on low-cost funding while HDB operates as an NBFC with more flexibility.
• 😀 NBFCs like HDB Financial can lend freely without the regulatory restrictions (SLR and CRR) that banks like HDFC face, making them more agile.
• 😀 Banks have to lend to the priority sector, which often involves low returns, while NBFCs are not bound by such mandates and can focus on more profitable sectors.
• 😀 The hype around unlisted stocks can lead investors to overvalue companies like HDB Financial, which ultimately results in market corrections.
• 😀 Bajaj Finance is fundamentally stronger than HDB Financial, as evidenced by better growth metrics and return on equity.
• 😀 HDB’s valuation in the unlisted market was inflated, with a higher price-to-book ratio compared to Bajaj Finance, leading to an eventual correction in its IPO price.
• 😀 Investors should avoid getting swayed by the marketing and media hype surrounding IPOs. Wait for the stock to be valued by the market before making any investment decisions.
• 😀 Stick to investing in already listed companies, as they have proven track records and offer a safer, more transparent investment opportunity.

Q & A

Why are many investors unhappy with the HDB Financial IPO?

Investors are unhappy because the unlisted shares of HDB Financial were trading at prices above ₹1200, but the IPO price is set at ₹740. This has caused dissatisfaction as those who invested in unlisted shares are likely to incur losses, even if there is a good listing gain.

What is the difference between HDFC Bank and HDB Financial?

HDFC Bank is a full-fledged bank that deals with retail banking and has a low-cost fund acquisition due to its current and savings accounts. HDB Financial, an NBFC (Non-Banking Financial Company), focuses only on providing loans and has more freedom in its operations, as it is not bound by the same RBI mandates that apply to banks.

What are SLR and CRR, and how do they affect banks?

SLR (Statutory Liquidity Ratio) and CRR (Cash Reserve Ratio) are regulations that require banks to set aside a portion of their deposits, limiting the amount they can lend. Currently, this is about 22-23%. This reduces the profitability of banks, as they cannot lend out all their funds and must rely on the remaining portion to generate revenue.

Why do banks have an NBFC arm or affiliate?

Banks have NBFC arms because NBFCs do not face the same regulatory constraints as banks. This allows them to lend more freely and target sectors that might not be profitable for banks due to mandatory government lending requirements.

Why are unlisted stocks attractive to investors, despite their risks?

Unlisted stocks are often seen as more attractive due to the potential for higher returns, as they can trade at a premium price in the unregulated market. However, the lack of liquidity and regulation can lead to significant risks and losses for investors.

What are the disadvantages of investing in unlisted stocks?

Investing in unlisted stocks comes with high risks, including lack of liquidity, market volatility, and the potential for overvaluation. Investors are often drawn to unlisted stocks due to hype and the allure of quick gains, but this can lead to substantial losses.

How does HDB Financial compare to Bajaj Finance in terms of fundamentals?

In terms of growth, NPI (Net Profit Income), and return on equity, Bajaj Finance is better than HDB Financial. Despite this, HDB's unlisted valuation was considered more premium than Bajaj Finance's, which led to an overvaluation. The correction in HDB's IPO price reflects its weaker fundamentals compared to Bajaj Finance.

Why did HDB Financial price its IPO at ₹740 instead of a higher price like ₹1250?

HDB Financial priced its IPO at ₹740 to avoid overvaluation in the market. If it had priced the IPO higher, smart investors would have compared it to Bajaj Finance and realized that HDB was overpriced. The lower IPO price reflects the company's weaker fundamentals compared to Bajaj Finance.

What is the advice regarding investing in unlisted companies?

The advice is to avoid investing in unlisted companies, as they are often overpriced and carry high risks. Instead, investors should stick to listed companies that are already established and regulated, offering more transparency and lower risk.

Why should investors stay away from the hype around IPOs?

Investors should avoid getting swept up in the hype surrounding IPOs because these are often driven by marketing and media influence. It is better to wait for the stock to be listed and evaluate it based on its market performance and fundamentals, rather than being swayed by early hype.