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Recent Market Performance of Bajaj Housing Finance

Following a strong debut on the stock exchanges this past Monday, Bajaj Housing Finance (BHFL) has seen a noticeable shift in its market dynamics. After a two-day rally, the stock faced significant selling pressure, resulting in a decline of 11% in just two days, bringing its share price down to Rs 161 on the Bombay Stock Exchange (BSE).

Investor Gains Amid Market Pullback

Despite this recent volatility and concerning price fluctuations, investors who participated in the IPO allotment are, interestingly, still enjoying considerable gains of approximately 130%. This gain reflects the robust demand and positive sentiment that initially surrounded the stock during its introduction to the market.

Analyst Insights and Projections

Notwithstanding the price correction and high valuations, industry analysts remain optimistic about the long-term prospects of the company. They attribute this confidence to several factors: the esteemed heritage of the Bajaj Group, the history of wealth creation within the group, the high-quality management team, and the integrity that the organization is known for. According to a recent coverage initiated by PhillipCapital, a respected domestic brokerage firm, they have set a target price of Rs 210 for the stock, highlighting its potential for future growth.

“We believe BHFL is in a league of its own, with its focus on the ‘desirable’ sweet spot for many home loan (HL) aspirants – a ticket size of Rs 5 million. This way, it addresses approximately 65% of home-loan originations in India," stated PhillipCapital in their analysis. They elaborated that BHFL is also increasingly focusing on Lease Rental Discounting (LRD), which is recognized as a high-yield segment offering operational leverage as the company scales up.

Market Capitalization and Stock Float

Currently, Bajaj Housing Finance boasts a market capitalization of Rs 1.20 lakh crore; however, the proportion of total free float shares available for trading is relatively low, constituting only about 12% of the company’s equity.

Deven Choksey, Managing Director at DRChoksey FinServ, estimated that around Rs 14,000-15,000 crore worth of floating stock is in circulation. He commented on market demand, noting that "beyond that, it is not available in the market." This situation implies that numerous funds are vying to acquire shares in what is considered a solid investment opportunity.

Growth Rate and Cost Valuation

Choksey pointed out that the company is maintaining a compounded growth rate of around 30%, suggesting that, despite the current share price reflecting a valuation of 7-7.5 times price to book value, it is still a strong investment when projected forward over the next three years. Averaging it out over that period, he believes the valuation might settle closer to 3.5 times.

“From that perspective, when you compare this company with others, it may sound slightly more expensive even at 3.5 times price to book value three years into the future. Still, the diversity of the portfolio and business model ensures that they will likely trade at a premium due to the consistent growth,” Choksey added.

Strategic Recommendations Amid Market Fluctuations

With these insights, Choksey advises that if the market presents an opportunity to purchase shares at a lower price during any future dips, it would be wise to consider such an investment. Although the stock may seem expensive, Choksey advocates for acquiring shares at a slight premium for superior quality investments.

Devang Mehta from Spark Private Wealth echoed this sentiment, stating that the company’s substantial database and the trust of both investors and borrowers alike significantly contribute to its stability. He describes these factors as qualitative strengths that underpin BHFL’s resilience in the market.

Conclusion: Holding Strategy and Current Trading Status

Mehta further recommends that those who currently hold shares from the IPO allotment maintain their position, while new investors might view this price dip as an opportune moment to invest in a high-quality stock.

As of approximately 11 AM, the shares of Bajaj Housing Finance were trading 6.3% lower at Rs 162.70 on BSE.

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Disclaimer: The recommendations, views, and opinions expressed by the experts are their own and do not necessarily reflect the views of Economic Times.

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