Company Profile:
Bajaj Housing Finance Ltd is a non-deposit taking Housing Finance Company (HFC), registered with the National Housing Bank (NHB) since September 24, 2015, and engaged in mortgage lending since Fiscal 2018. It has been identified and categorized as an “Upper Layer” NBFC (NBFC-UL) in India by the RBI since September 30, 2022, as part of its “Scale Based Regulations (SBR): A Revised Regulatory Framework for NBFCs” dated October 22, 2021.
It offers financial solutions tailored to individuals and corporate entities for the purchase and renovation of homes and commercial spaces. Its mortgage product suite is comprehensive and comprises (i) home loans; (ii) loans against property (LAP); (iii) lease rental discounting; and (iv) developer financing. Furthermore, its primary emphasis is on individual retail housing loans, complemented by a diversified collection of lease rental discounting and developer loans. Consequently, its financial products cater to every customer segment, from individual homebuyers to large-scale developers.
As of March 2023, the total overall outstanding housing loans (excluding Pradhan Mantri Awas Yojana loans) were approximately Rs. 28.7 trillion. It’s strategic focus is on low risk and fast growing home loan customers and as of March 31, 2024, home loans contributed 57.8% of its AUM, of which 87.5% pertained to salaried customers, 4.3% self-employed professional customers and 8.2% self-employed non-professional customers.As of June 30, 2024, the company had 323,881 active customers, 83.2% of whom were home loan customers. Overall loan disbursements increased to Rs. 44656.24 cr in FY24 from Rs. 26175.24 cr in FY22, which demonstrates a growth in business and market reach. The company had a network of 215 branches as of June 30, 2024, spread across 174 locations in 20 states and three union territories, which are overseen by six centralized hubs for retail underwriting and seven centralized processing hubs for loan processing.
Promoters & Shareholding:
Bajaj Finance Limited and Bajaj Finserv Limited are the company promoters.
| Particulars | Pre – Issue | Post – Issue |
| Promoters & Promoters Group | 100% | 88.75% |
| Others | 0 | 11.25% |
Public Issue Details:
Offer for sale: Fresh issue of approx. 508,571,429 equity shares of Rs. 10, aggregating up to 3,560 Cr and OFS of approx. 428,571,429 equity shares at Rs. 10, aggregating up to Rs. 3,000 Cr.
Total IPO Size: Rs. 6,560 Cr.
Price band: Rs. 66 – Rs. 70.
Objective: Augmenting its capital base to meet its future capital requirements and for general corporate purposes.
Bid qty: minimum of 214 shares (1 lot) for Rs. 14,980 and maximum of 13 lots.
Offer period: Monday, September 9, 2024 – Wednesday, September 11, 2024.
Date of listing: Monday, September 16, 2024.
Pros:
- The “Bajaj” brand has a prestigious legacy and is widely recognized as a trustworthy retail name, known for its strong brand value and reputation.
- The second-largest housing finance company (HFC) in India by assets under management (AUM), with a proven history of robust growth fueled by a diverse portfolio.
- A well-established strategic presence, utilizing an omni-channel sourcing approach powered by customer-focused digital initiatives and technological advancements.
- Clear credit evaluation and risk management practices have led to the lowest Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) among peers in Fiscal 2024.
- An experienced management team, backed by a dedicated group of professionals, with the capability to attract and retain top talent.
Risks:
- Customer Risk: The home loan portfolio primarily includes salaried and self-employed individuals who may face challenges like business failure, insolvency, liquidity issues, unemployment, or personal emergencies.
- The housing finance industry is highly competitive and if the company is not able to compete effectively, it could adversely affect the business.
- Portfolio is significantly exposed to real estate and any significant downturn or any adverse developments in the real estate sector.
- The Company may face interest rate and maturity mismatches between its assets and liabilities in the future.
Subscribe or Avoid?
Sectorial outlook – The housing finance sector in India has experienced significant expansion, with the prime housing finance market reaching ₹11.5 lakh crores by Fiscal 2024. This growth, at a compound annual growth rate (CAGR) of 20.1% from Fiscal 2019 to Fiscal 2024, surpasses the overall housing finance market’s CAGR of 13.1%. Contributing factors include rapid urbanization, enhanced infrastructure, and rising real estate prices, which appreciated by 5-7% in Fiscal 2023 and 4% in Fiscal 2024, with forecasts suggesting a 3-5% increase in Fiscal 2025.
In this thriving sector, Bajaj Finance Ltd. stands out due to its robust performance. As of March 31, 2024, the company’s assets under management (AUM) had reached ₹91,370.40 crores, reflecting a notable CAGR of 30.9% from FY22 to FY24. By June 30, 2024, AUM grew to ₹97,071.33 crores. The company’s home loan portfolio features an average ticket size of ₹46 lakhs and an average loan-to-value ratio of 69.3%. Impressively, 75.5% of its home loan AUM is from customers with a CIBIL score above 750. Additionally, Bajaj Finance’s diverse portfolio includes 10% in loans against property (LAP), 11.2% in developer finance for residential and commercial projects, and 19.5% in lease rental discounting for commercial properties.
These strong metrics and the favorable market dynamics underscore Bajaj Finance Ltd.’s strategic position within the expanding housing finance sector. As such, the company’s IPO is well-positioned to attract significant investor interest, reflecting its strong growth trajectory and alignment with the sector’s positive outlook.
The financials (revenue and net profit) are shown in the graph below:
Valuation – For the last 3 years average EPS is Rs. 2 and the P/E is around 35x on the upper price band of Rs. 70. EPS for Jun-24 is Rs. 0.6 and by annualizing the EPS the current P/E is around 29.16x. It has LIC Housing Finance (8.26x), PNB Housing Finance (17.3x), Can Fin Homes (15x), Aadhar Housing Finance (24.6x), Aavas Financier (28.6x), Aptus Value Housing (24.5x), and Home First Finance (29.7x) as their listed peers as per the RHP. The company’s P/E is between 29x and 35x. Revenue and margins has been growing consistently. Its GNPA is around 0.3% and NNPA is 0.1%.
Recommendation – Bajaj Finance Ltd. presents a compelling investment opportunity with its strong performance and strategic position within the expanding housing finance sector in India. The company’s impressive growth, with assets under management and its solid portfolio of high-quality home loan customers underscore its robust fundamentals.However, compared to its peer group, the IPO valuations appear relatively high. Given this, while the company is fundamentally strong and well-positioned for future growth, we recommend adopting a “buy on dips” approach once the stock is listed. This strategy will allow investors to take advantage of potential price corrections and secure a more favourable entry point while still benefiting from the company’s strong market outlook and performance.
Disclaimer:
This article should not be construed as investment advice, please consult your Investment Adviser before making any sound investment decision.
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