The IPO of Bajaj Housing Finance is expected in September 2024. It will be a complete new issue and hence, the company will make its first-time entry into the equity market. Bajaj Housing Finance, a subsidiary of Bajaj Finance Limited, provides a broad array of home financing products, comprising loans for purchasing homes, construction, and refinancing. The company also intends to raise capital through an initial public offering for its expansion strategy, wherein the housing finance segment is leading.
Background of Bajaj Housing Finance
BHFL is a company incorporated in the year 2008 and falls under the larger umbrella of Bajaj Finserv, one of India’s biggest financial services conglomerate. BHFL’s key offerings are home loans, loan against property, and construction finance across a wide range of customers throughout India. The company has seen high growth in recent years, particularly with regards to the loan book, which grew at about 31% annually between FY22 and FY24.
IPO Details
Opening Date:
The IPO opens for subscription on 9th September 2024 and closes on 11th September 2024.
Price Band:
Though the exact price band is still to be determined, industry estimates indicate that it will be competitively priced in view of the sound financial metrics the company has posted.
Lot Size and Face Value:
The minimum lot size for investors will be finalized near the time of listing, and the face value of the shares is ₹ 10.
Listing:
On completion of the IPO, Bajaj Housing Finance will list on the National Stock Exchange and Bombay Stock Exchange. Thus, the company gets visibility in the capital market.
Financial Performance
Bajaj Housing Finance has always reported decent financial results. The company has posted an ROE of 13.6% and ROA of 2.3% as of June 2024, reflecting efficient utilization of its assets. Its loan book has expanded manifold as the AUMs of the company stand at ₹97,071 crore. This growth has been partly attributed to rising disposable incomes, a rise in demand for housing finance in India, and governmental initiatives towards home ownership.The company’s NII has also expanded 38% annually over the last three years, underpinning higher spreads between the cost of borrowings and the yield on loans. Bajaj Housing Finance has reported an average healthy net interest margin of 4.2% during this period, significantly higher compared with the industry average.
Competitive Position and Risks:
BHFL operates in a highly competitive market, dominated by banks, small finance banks, and other NBFCs, despite its strong financial performance. Supported by lower costs of funds, banks continue to be strong competitors that could restrict BHFL’s future margin growth.
While the asset quality has been enviable, with a gross NPA of only 0.3%, the intrinsic risks in the housing finance market will always be a factor in long-term performance. However, its high capital adequacy ratio of 24% as of June 2024 lends a cushion so that the company would be able to support losses and operational continuity without recourse to external financing.
Strengths of the IPO
Part of a Reputed Group:
Being a subsidiary of Bajaj Finance, BHFL has the gains inherent in its wide network and goodwill in the financial sectors for attracting a wide range of customers and partnerships.
Strong Financial Performance:
The good asset quality, coupled with an almost linear growth in the loan book, ensured a strong financial base for the company. The cost-to-income ratio stands impressively at 24%, which goes to reflect operational efficiency.
Growth Opportunities:
The increase in demand for housing loans in India, on the back of increasing urbanization and conducive government policies, provides ample growth opportunities. Moreover, proceeds from the IPO will further strengthen its capital base to expand and scale up operations.
Potential Risks
Competition:
BHFL faces stiff competition from banks and other NBFCs, which have relatively lower interest rates to offer owing to access to cheaper funds. This will have a reflection in the long-term market share and profitability.
Market Volatility:
As with any financial institution, fluctuation in market interest rates, inflation, and/ or economic downturn can impact the performance of the business. With the stock currently trading at a relatively expensive valuation of 33.3 times earnings compared to its peers, there is likely to be some disappointment in the share price performance.
Conclusion
The Bajaj Housing Finance IPO represents a pretty strong opportunity for investors seeking to catch the booming housing finance market in India. Backed by its highly regarded parent company and on the path of strong financial growth, Bajaj Housing Finance seems set for bright prospects ahead. However, potential investors should not take a decision before weighing the risks associated with a competitive landscape and a wider economy.
