Bajaj Housing Finance Ltd (BHFL) has been making waves in the financial markets since its recent initial public offering (IPO). The company’s shares have seen a remarkable surge, climbing from the IPO price of Rs. 70 to a new high of Rs. 181.48 on September 17, representing a staggering 159% rally. This impressive performance has caught the attention of investors and analysts alike, with many bullish on the company’s future prospects.
Phillip Capital’s Bullish Stance on Bajaj Housing Finance
Adding fuel to the fire, brokerage house Phillip Capital has initiated coverage on Bajaj Housing Finance with a “Buy” recommendation. The brokerage has set a target price of Rs 210, suggesting a potential upside of 27% over the next year. In a more optimistic scenario, they even see the possibility of a 35% surge.
Phillip Capital’s analysis is based on a multi-faceted approach, considering base, bear, and bull cases. They’ve applied a Price-to-Earnings (P/E) multiple of 30x, which is approximately 20% below Bajaj Finance’s +1 standard deviation. The brokerage has also factored in a conservative 15% hold-co discount, despite there being no tax obligation for such a discount.
Strategic Positioning and Market Dominance
One of the key factors behind Phillip Capital’s positive outlook is BHFL’s strategic positioning in the housing finance market. The company has shown particular strength in the salaried home loan segment, maintaining stable expense ratios and manageable credit costs. These factors contribute to impressive return ratios, setting BHFL apart from its competitors.
In just six years of operation, BHFL has established itself as one of the top seven mortgage originators and one of the top three housing finance companies (HFCs) in India. Phillip Capital projects that BHFL could emerge as one of India’s top four mortgage players in the medium term.
Risk Management and Portfolio Quality
BHFL’s risk management strategies have been particularly noteworthy. The company’s gross non-performing assets (NPA) have remained consistently low, hovering between 0.6% and 0.8%. This reflects the company’s solid underwriting standards and its focus on low-risk segments.
The company’s Loan Against Property (LAP) portfolio is another area of excellence. Approximately 70% of these loans are linked to self-occupied residential properties, with a loan-to-value (LTV) ratio of around 45%. This conservative approach enhances BHFL’s return ratios and cost efficiency.
Leveraging Parent Company Strengths
BHFL has effectively leveraged its relationship with parent company Bajaj Finance to tap into an extensive customer base of 88 million. This connection allows BHFL to gain deep insights into customer behavior and target specific segments for cross-selling opportunities. Bajaj Finance has also provided substantial capital support, including a recent infusion of Rs 2,500 crore in FY23 and an additional Rs 2,000 crore through a rights issue.
Growth Outlook and Financial Projections
Phillip Capital expects BHFL to maintain its focus on high-yield segments, particularly in the Rs 50 lakh ticket size range, which accounts for 65% of home loan originations in India. The brokerage forecasts that BHFL’s balance sheet will exceed Rs 2 lakh crore within the next three years.
In the short term, credit costs are expected to remain benign. The company’s strategy of building a low-risk balance sheet is projected to yield a robust Return on Assets (RoA) of over 2% and Return on Equity (RoE) above 12% by FY25-27.
Record-Breaking IPO and Market Performance
The journey to BHFL’s current market position began with its highly successful IPO, which ran from September 9 to 11. The offering was oversubscribed by an astounding 63.61 times, with bids for over 4,628 crore equity shares against the 72.75 crore shares available. This overwhelming demand raised the total value of applications to nearly Rs 3.24 lakh crore.
The company raised Rs 6,560 crore through a combination of fresh issue (Rs 3,560 crore) and offer-for-sale (OFS) (Rs 3,000 crore). Shares debuted at Rs 150 per share on both the BSE and NSE, representing a 114.29% premium over the issue price.
Regulatory Compliance and Future Outlook
It’s worth noting that BHFL’s IPO was partly driven by the need to comply with Reserve Bank of India (RBI) regulations, which mandate that upper-layer non-banking finance companies must be listed on stock exchanges by September 2025.
As BHFL continues to navigate the competitive landscape of India’s housing finance sector, analysts are generally advising investors to hold the stock for long-term gains. For those who missed out on the IPO, cautious buying with a long-term perspective is recommended.
With its strong market position, strategic focus, and positive analyst outlook, Bajaj Housing Finance appears well-positioned to capitalize on the growing demand for housing finance in India. As always, investors should conduct their own due diligence and consider their risk tolerance before making investment decisions.
