Bajaj Housing Finance Company is coming up with its IPO fresh issue of Rs. 3,560 crores and offer for sale worth Rs. 3,000 crores, totalling Rs. 6,560 crores. which will open on 9^th September 2024. The issue will close on 11^th September 2024 and be listed on the exchange on 16^th September 2024. In this article, we will look at the Bajaj Housing Finance IPO and analyze its GMP, strengths and weaknesses. Keep reading to learn about the company.

Bajaj Housing Finance IPO – About the Company

The company was founded in 2008. Bajaj Housing Finance Limited is a non-deposit-taking Housing Finance Company registered with the National Housing Bank since 2015. They offer a range of mortgage products including home loans, loans against property, lease rental discounting, and developer financing. The company primarily focuses on individual retail housing loans, with a significant portion of its portfolio consisting of low-risk salaried customers.

Bajaj Housing Finance has a wide network of 215 branches across 174 locations in India as of June 30, 2024. They use both direct and indirect channels for loan origination, including partnerships with developers, digital platforms, and intermediaries. The company emphasizes digitization and innovation, introducing features like OTP-based e-agreements and a DIY home loan portal to streamline the loan process.

The company boasts strong financial performance, with consistent profitability and a capital adequacy ratio exceeding regulatory requirements. As of June 30, 2024, their assets under management were Rs. 97,071.33 crore. Bajaj Housing Finance maintains high credit ratings and offers competitive loan pricing due to its cost-effective funding base.

Bajaj Housing Finance IPO – About the Industry

India’s urbanization drives economic growth and infrastructure development. The urban population is expected to reach 37.4% by 2025. Despite this growth, many Indians still lack access to formal banking. Only 12% of the population borrowed money through financial institutions in 2021, though this has increased from 8% in 2017.

Household savings as a percentage of GDP rose during the pandemic but have since declined. This decline stems from increased borrowing, retail credit push by lenders, and improved access to credit through technology. The retail credit market has grown strongly and is projected to grow at 14-16% between Fiscal 2024 and 2027.

NBFC credit is expected to grow 15-17% between Fiscal 2024 and 2027, driven by retail and MSME loans. India’s mortgage-to-GDP ratio has improved from 6.5% in 2009 to 12.3% in 2023. CRISIL MI&A projects this ratio to reach 14-15% by Fiscal 2025, driven by rising incomes, urbanization, and government measures.

Bajaj Housing Finance IPO – Financial Highlights & Segments

Bajaj Housing Finance reported a Net Interest Income of Rs. 2,509.75 crores in FY24, and Rs. 2,057.92 crores in FY23. Net Profits in FY24 stood at Rs. 1,731.22 crore, and Rs. 1,257.80 crore in FY23. The costs involved apart from finance costs are Employee Benefit expenses and other expenses. 

Net Interest Margins in FY24 was 4.10% compared to 4.50% in FY23. In FY24, the EPS was Rs. 2.6 per share and Rs. 1.9 per share in FY23. This is an improvement compared to Rs. 1.5 per share in FY22. The increase in EPS is based on an improvement in interest income. 

RoE was 15.20% in FY24 compared to 11.10% in FY23. There increase in RoE was due to income increase and higher profits which might have contributed to the cause. The Liquid Coverage Ratio (LCR) in FY24 stood at 192.31% in FY24 which is above the regulatory requirement of 85%. In FY23, it was 149.72% and well above the requirement of 70%. This shows a healthy margin and robust liquidity. 

The Capital to Risk Assets Ratio (CRAR) stood at 21.28% in FY24 compared to 22.97% in FY23, which is higher than the regulatory requirement of 15%. To understand operational efficiency looking at Operating Expenses to Net Total Income makes it relevant. The ratio stood at 24% in FY24 compared to 25.70% in FY23. 

Bajaj Housing Finance recognises its revenue from operations under the business of financing and caters to domestic customers only. Their major states involved Maharastra which has 32% of the AUM and 35.80% of disbursements. Karnataka stands second with 22.70% of AUM and 21.10% of disbursements and Telangana with 14.80% of AUM and 13.70% of disbursements as of 30  June 2024.

Non Performing Assets in FY24 stood at 0.10% compared to 0.08% in FY23. Gross Non-Performing Assets were 0.27% in FY24, which marginally increased from 0.22% in FY23. 

Bajaj Housing Finance IPO – Listed Key Players 

The listed peers of Bajaj Housing Finance are LIC Housing Finance, PNB Housing Finance, Can Fin Homes, Aadhar Housing Finance, Aavas Financiers, Aptus Value Housing Finance, and Home First Finance.

Compared to its peers, the AUM of Bajaj is around 97,071 crore compared to a higher range of LIC which has a higher AUM of around Rs. 2.86L crore and lower range of Aptus of Rs. 6,759 crore in FY24. The net NPA of Bajaj is around 0.10% when compared to its peers it stands in the range of 0.42% to 1.63%. Bajaj outperformed its peers in asset quality. 

Aptus Value had a superior CRAR in FY24 of around 73% compared to Bajaj’s 21.28%. The peers ranged from 18.20% to 73.03%. However, based on AUM size, Bajaj has relatively better CRAR. 

When Bajaj has compared Operating expenses to total income, LIC fares better than its peers with the lowest margin of 13% in FY24. The range stood between 13% to 45.60% as the highest. Bajaj is at the mid-range of the margin which shows further there is room for further improvement. Overall the Bajaj has outperformed in some parameters and was on par with the peers. 

Strengths Of the Company

1. Bajaj brand recognition: The company benefits from the well-known Bajaj brand. This retail-focused brand has strong recognition among Indian consumers, contributing to the company’s growth and market position.
2. Large market presence: Bajaj Housing Finance is the second largest HFC in India by AUM. It has shown strong growth, increasing its AUM at a CAGR of 30.9% from Fiscal 2022 to 2024.
3. Diverse product portfolio: The company offers a range of mortgage products. These include home loans, loans against property, lease rental discounting, and developer financing. This diversity helps them cater to various customer needs.
4. Strong distribution network: Bajaj Housing Finance has 215 branches across 174 locations. It uses both direct and indirect channels for loan origination. This wide reach helps them serve customers in urban and rural areas.
5. Effective risk management: The company maintains low GNPA and NNPA ratios. It uses a centralized underwriting process and digital tools for credit assessment. This approach helps them manage risk effectively across their product range.

Weaknesses Of The Company

1. AUM Regional Diversification: Bajaj Housing Finance concentrates its assets under management in just five regions including Maharastra, Karnataka, and Telangana being the top 3. This concentration makes the business vulnerable to economic or political problems in these areas.
2. Reliance on Real Estate: The company relies heavily on real estate as collateral. Any downturn in the property market could reduce the value of the collateral and might hurt the company’s ability to recover loans.
3. Interest Risk: The company faces risks from interest rate changes. Most of its loans have floating interest rates, any changes in Interest changes in macro terms might affect the borrowing and lending rates. Even many of its borrowings have fixed rates. This mismatch could reduce profits if interest rates move unfavorably.
4. External Agents: Bajaj depends on external agents to bring in customers. These agents don’t work exclusively for the company, which could limit growth if the agents bring fewer customers.
5. Vacancy Risks: The company’s lease rental and developer financing portfolios face specific risks. Higher vacancy rates in commercial properties and delays in construction projects could lead to loan repayment problems.

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Bajaj Housing Finance IPO – GMP

The shares of Bajaj Housing Finance Ltd’s price in the grey market were trading at a 68.57% premium as of September 04^th, 2024. The shares in Grey Market traded at Rs.118. This gives it a premium of Rs.48 per share over the cap price of Rs. 70. 

Bajaj Housing Finance IPO – Key IPO Information

Promoters: Bajaj Finance Limited and Bajaj Finserv Limited.

Book Running Lead Manager: Kotak Mahindra Capital Company Limited, BofA Securities India Limited, Axis Capital Limited, Goldman Sachs (India) Securities Private Limited, SBI Capital Markets Limited, IIFL Securities Limited and JM Financial Limited.

Registrar to the Offer: KFin Technologies Limited.

The Objective of the Issue

1. Increase capital base to meet future business needs for onward lending – Rs. 3,560 crore.

Conclusion

Bajaj Housing Finance has the majority of its exposure in the southern and western states of India. They have 2nd largest AUM among the listed peers which shows their sheer size in the housing market. With demand picking up as people are more inclined towards buying premium houses, the value of the houses might increase further. However, there are some parameters to improve especially in Cost to Income, NIM which ensures to keep earnings stable. 

So what do you think of this company? Will it be able to increase and improve its presence and sustain growth while competing with its peers in the same space? What is your view? Let us know in the comments below.

Written by Santhosh

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