Bajaj Housing Finance IPO: A Comprehensive Analysis and Expert Recommendations

Bajaj Housing Finance Limited (BHFL) has launched its much-anticipated initial public offering (IPO) in the housing finance sector in India. The company has successfully raised ₹1,758 crore from anchor investors ahead of its public share-sale, demonstrating strong initial interest and confidence from institutional investors. The public subscription period for the IPO is set to commence on September 9 and will conclude on September 11. The price band for the IPO is strategically set between ₹66 to ₹70 per share, aiming to attract a broad spectrum of investors.

In terms of allocation, 50% of the shares in the IPO are reserved for qualified institutional buyers (QIBs), 15% for non-institutional investors (NIIs), and 35% for retail investors. Additionally, a specific quota has been earmarked for shareholders, which is often offered as a perk for parent company shareholders in IPOs where the parent company is already listed on the market. This structured allocation ensures a balanced distribution among different types of investors, promoting inclusivity and widespread participation.

Bajaj Housing Finance, a subsidiary of the renowned Bajaj Group, has been providing mortgage loans since the fiscal year 2018. It operates as a non-deposit housing financing company, driven by Bajaj Finserv Ltd and Bajaj Finance Ltd. Bajaj Housing Finance is a wholly owned subsidiary of Bajaj Finance, with Bajaj Finserv holding a 51.34% stake in Bajaj Finance. The company benefits immensely from the Bajaj Group’s heritage, which has contributed to its steady sales and profit growth, making it a formidable player in the housing finance sector.

The valuation of the IPO is considered reasonable by market experts, and there is a high demand and anticipation surrounding it. Analysts recommend subscribing to the IPO, citing potential benefits from listing gains and long-term value appreciation. The IPO is being launched to comply with the Reserve Bank of India’s (RBI) directive for higher layer non-banking financial organizations (NBFCs) to list on stock exchanges by September 2025. The proceeds from the IPO will be utilized to expand the company’s capital base and meet future capital requirements, ensuring sustainable growth and development.

The book running lead managers for the offering include prominent names such as Axis Capital Ltd, Goldman Sachs (India) Securities Private Ltd, SBI Capital Markets Ltd, JM Financial Ltd, IIFL Securities Ltd, and Kotak Mahindra Capital Company Ltd. The grey market premium (GMP) for Bajaj Housing Finance IPO is estimated to be +56, indicating that the share price was trading at a premium of ₹56 in the grey market. The estimated listing price is ₹126 apiece, representing an 80% increase from the IPO price of ₹70. According to experts, the GMP ranges from ₹36 to ₹60, with ₹36 being the lowest and ₹60 being the highest.

The GMP serves as a barometer of investor sentiment and indicates their willingness to pay more than the IPO price. However, investors are advised to consult with certified experts before making any investment decisions. The positive GMP signals strong investor confidence and bodes well for the IPO’s performance in the secondary market. Given the company’s robust financial health, strategic backing from the Bajaj Group, and favorable market conditions, the IPO is poised to attract significant investor interest.

In another related development, Bajaj Finance Ltd. received a target price hike from Jefferies, owing to an anticipated improvement in bounce rate, which refers to the rate of missed EMI installments by customers. The non-bank lender has implemented stricter standards for new loans, which is expected to decrease loan growth from 31% to 25-26%. Despite this, Jefferies raised the target price for Bajaj Finance stock from ₹7,780 apiece to ₹8,410 per share, implying a potential upside of 16% from the recent closing price.

Credit costs are expected to moderate, leading to stability in net interest margins and improved earnings from the December quarter. The brokerage firm predicts a 16% growth in profit for the current fiscal year, with further improvements expected over the next three years, potentially reaching 25-27% on a compounded annual basis. Bajaj Finance stock initially rose 2% but later traded 1.6% higher at ₹7,362 per share, compared to a 0.6% decline in the NSE Nifty 50. In the last 12 months, the stock has declined 0.5% and 1% year-to-date.

The total traded volume for the day was 3.2 times its 30-day average, with the relative strength index for Bajaj Finance stock at 68. Out of 35 analysts tracking Bajaj Finance, 25 have a ‘buy’ rating on the stock, while 5 recommend a ‘hold’ and 5 suggest a ‘sell’. According to Bloomberg data, the average of 12-month analysts’ price targets implies a potential upside of 9.1%. Jefferies’ target price increase suggests a higher potential upside of 16%, reflecting a more optimistic outlook on the stock’s performance.

Bajaj Housing Finance, founded in 2008 and registered with the National Housing Bank in 2015, offers a range of mortgage loans and is part of the diversified Bajaj group. The company aims to raise ₹6,560 crore in its primary stake sale, including a fresh share sale and an offer-for-sale from its promoter. The funds raised will be used to augment capital for future business requirements. Prior to its IPO, Bajaj Housing Finance raised ₹1,758 crore from anchor investors, including prominent names such as the Government of Singapore, New World Fund Inc, and Fidelity.

The company offers customized financial solutions for purchasing and renovating homes and commercial spaces. Its mortgage product range includes home loans, loans against property, rent concessions, and developer finance. As of March 31, 2024, Bajaj Housing Finance had 308,693 active customers, with a majority being home loan customers. It operates a network of 215 branches across 20 states and three union territories. Shares worth ₹200 crore will be reserved for eligible employees, and ₹500 crore for eligible shareholders of Bajaj Finance and Bajaj Finserv.

Qualified institutional bidders will receive 50% of the net offer, while non-institutional investors and retail investors will receive 15% and 35%, respectively. For the quarter ending June 30, 2024, Bajaj Housing Finance reported a net profit of ₹482.61 crore and a revenue of ₹2,208.73 crore. In the financial year 2023-2024, its net profit was ₹1,731.22 crore with a revenue of ₹7,617.71 crore. The company’s IPO is being managed by leading financial institutions, and its shares will be listed on both BSE and NSE, likely on September 16, 2024.

Analysts recommend subscribing to the IPO, given the company’s strong financial performance and market excitement. Bajaj Housing Finance is the largest non-deposit taking HFC in India within seven years of commencing mortgage operations. The company boasts the lowest gross non-performing assets (GNPAs) and net non-performing assets (NNPA) ratios among its large HFC peers in the industry. This impressive track record underscores the company’s operational efficiency and prudent risk management practices.

The IPO of Bajaj Housing Finance is a significant event in the Indian financial market, attracting attention from a wide range of investors. The company’s strong financial performance, strategic backing from the Bajaj Group, and favorable market conditions make it a compelling investment opportunity. With a reasonable valuation, high demand, and positive grey market premium, the IPO is poised for success. Investors are encouraged to consider the long-term growth prospects and consult with financial advisors to make informed investment decisions.