- September 16, 2024
- Posted by: legaleseblogger
- Category: Related News
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Bajaj Housing Finance Ltd’s Stellar Performance and Future Projections
Surge in Stock Value
Following its remarkable debut on September 16, Bajaj Housing Finance Ltd (BHFL) has captivated investors with an exceptional multi-bagger performance. Brokerage house Phillip Capital has highlighted the company’s potential for further growth, projecting a forecasted rise of an additional 27 percent over the coming year. As of September 17, the stock soared by an impressive 10 percent in intra-day trading, reaching a new high of ₹181.48. This marks a staggering 159 percent increase since its initial public offering (IPO) at ₹70, underscoring the market’s positive reception.
Investment Recommendations from Phillip Capital
Initiating coverage with a "Buy" recommendation, Phillip Capital has identified BHFL’s strategic positioning and unique approach within the housing finance sector as key drivers for future growth. The brokerage even presented an optimistic bull case scenario, suggesting that the stock may rise by over 35 percent. This positive outlook is attributed to the company’s innovative strategies and market positioning that differentiate it from its competitors.
Comprehensive Evaluation Methodology
Phillip Capital’s evaluation included a thorough analysis consisting of three potential scenarios while maintaining a conservative 15 percent hold-co discount, despite the absence of tax obligations for such a discount. The brokerage attributed significant weights to different cases: 50 percent to the base case, 40 percent to a bearish perspective, and a 10 percent to the bullish estimate, utilizing a price-to-earnings multiple of 30x—approximately 20 percent less than the upper standard deviation of Bajaj Finance. This meticulous analysis utilized an earnings multiple for BHFL’s credit business while applying a price-to-book multiple to its housing finance operations to reflect its conventional lending model accurately.
Operational Efficiency and Market Focus
The brokerage has praised BHFL’s commitment to focusing on salaried home loans, which translates into stable expense ratios and manageable credit costs. These operational efficiencies are vital for the company, as they contribute to impressive return ratios, ensuring sustainable growth in an increasingly competitive market.
IPO Success and Capital Raising
Bajaj Housing Finance’s IPO was an overwhelming success, with the shares listed at ₹150 on the BSE and NSE, showcasing a premium of 114.29 percent over the initial issue price of ₹70. The IPO, which took place from September 9 to 11, saw phenomenal demand—a staggering oversubscription of 63.61 times, with bids exceeding ₹4,628 crore for the 72.75 crore shares offered. This level of interest resulted in the company raising ₹6,560 crore through a mix of fresh issuance and an offer-for-sale (OFS) component.
Market Position and Future Prospects
Phillip Capital anticipates that BHFL will establish itself among the top four mortgage players in India in the medium term. In just six years of operation, BHFL has already positioned itself among the top seven mortgage originators and top three housing finance companies in the country. The company aims for a gross non-performing asset (NPA) ratio between 0.6 to 0.8 percent, primarily targeting salaried housing loans to maintain quality.
Leveraging Data Insights for Growth
According to Phillip Capital, BHFL leverages its parent company, Bajaj Finance’s vast customer base of 88 million, to gain valuable data insights. This strategic advantage enables the company to tailor offerings and enhance cross-selling initiatives effectively. To further support its expansion initiatives, Bajaj Finance invested ₹2,500 crore in FY23 and an additional ₹2,000 crore through a rights issue, leading to an overall infusion of ₹9,500 crore. Furthermore, BHFL’s AAA rating from CRISIL and India Ratings underscores the strength of its financial foundation and low-risk operational model.
Competitive Edge in the Home Loan Sector
Phillip Capital’s analysis emphasizes BHFL’s competitive edge in the home loan market by primarily catering to customers with an average annual income of ₹14 lakh. This focus allows BHFL to target individuals who possess pricing power and multiple options within key markets. Additionally, the strategic introduction of top-up home loans enhances yields, which is particularly beneficial in a sector characterized by intense competition.
Emphasis on Sourcing and Risk Management
The brokerage highlights that approximately 40 percent of BHFL’s home loans were sourced from existing Bajaj Finance customers, indicating a strong relationship management strategy. Additionally, with nearly 90 percent of its home loan borrowers being salaried professionals, BHFL is able to operate at lower expense ratios in the medium term, thereby improving its risk-adjusted spreads. By maintaining a focus on salaried customers, BHFL successfully reduces operational expenditures while improving its overall risk metrics.
Focus on Loan Against Property (LAP) and Cost Efficiency
Roughly 70 percent of BHFL’s Loan Against Property (LAP) portfolio comprises loans for self-occupied residential properties, with around 45 percent loan-to-value ratios originating from existing clients. This shift emphasizes effective cost management strategies while enhancing return ratios. As BHFL expands its operations, the assets under management (AUM) per branch have seen significant growth, approaching levels similar to that of LIC Housing Finance.
Growth Outlook and Strategic Segments
Phillip Capital has outlined BHFL’s focused strategy on the desirable ₹50 lakh ticket size, which fosters approximately 65 percent of home loan originations in India. This targeted segment, along with an increasing interest in Lease Rental Discounting (LRD)—a high-yield industry offering operational leverage—positions BHFL favorably for long-term expansion. Its construction finance (CF) portfolio, estimated to remain between 8 and 10 percent of the total book, is expected to stay within range.
Anticipated Financial Strength
The brokerage predicts BHFL will see its balance sheet exceed ₹2 lakh crore within the next three years. In the short term, credit costs are expected to remain manageable while the company maintains its commitment to building a low-risk balance sheet. The brokerage projects a robust Return on Assets (RoA) of over 2 percent and a Return on Equity (RoE) of above 12 percent, as BHFL scales its operations.
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Disclaimer: The views and recommendations mentioned above are those of individual analysts or brokerage firms and do not represent the opinions of Mint. Investors are advised to consult certified experts before making any investment decisions.
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