Bajaj Housing Finance IPO review (Apply)

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Review By Dilip Davda on September 4, 2024

•    BHFL is a Bajaj group company engaged in the housing finance segment and is the second largest fastest growing entity with Bajaj legacy. 
•    After long period, we have an attractive offer from the Bajaj group company.
•    The company posted steady growth in its top and bottom lines for the reported periods.
•    Based on FY25 annualized earnings, the issue appears fully priced.
•    This is a pure long term investment considering the Bajaj Tag.
•    Investors may park moderate funds as a long term bet in their portfolio.

ABOUT COMPANY:
Bajaj Housing Finance Ltd. (BHFL) is a non-deposit taking Housing Finance Company ("HFC"), registered with the National Housing Bank ("NHB") since September 24, 2015, and engaged in mortgage lending since Fiscal 2018. It has been identified and categorized as an "Upper Layer" NBFC ("NBFC-UL") in India by the RBI since September 30, 2022, as part of its "Scale Based Regulations (SBR): A Revised Regulatory Framework for NBFCs" dated October 22, 2021.

The company offers financial solutions tailored to individuals and corporate entities for the purchase and renovation of homes and commercial spaces. Its mortgage product suite is comprehensive and comprises (i) home loans; (ii) loans against property ("LAP"); (iii) lease rental discounting; and (iv) developer financing. Furthermore, its primary emphasis is on individual retail housing loans, complemented by a diversified collection of lease rental discounting and developer loans. Consequently, its financial products cater to every customer segment, from individual homebuyers to large-scale developers.

As of March 2023, the total overall outstanding housing loans (excluding Pradhan Mantri Awas Yojana loans) were approximately Rs. 28.7 trillion, highlighting the significant market potential if measures are implemented to address this shortage. Consequently, BHFL's strategic focus is on low risk and fast growing home loan customers and as at March 31, 2024, home loans contributed 57.8% of its AUM, of which 87.5% pertained to salaried customers, 4.3% self-employed professional customers and 8.2% self-employed non-professional customers. Furthermore, according to CRISIL MI&A, the income of the salaried class remained largely intact despite the economic slowdown caused by the COVID-19 pandemic and rise in inflation, thereby allaying lenders' concerns about any deterioration in asset quality. As at March 31, 2024, its assets under management ("AUM") were Rs. 913,70.40 cr., reflecting a CAGR of 30.9% between Fiscals 2022 to 2024. Further, as at June 30, 2024, its AUM were Rs. 970,71.33 cr. The average ticket size of its home loans was Rs. 4.6 million, with an average loan-to-value ratio of 69.3%, as at June 30, 2024, and 75.5% of home loan AUM were from customers with a CIBIL score above 750. Further, its LAP, developer finance loans for residential as well as commercial construction and lease rental discounting against commercial properties comprised 10.0%, 11.2% and 19.5% of AUM as at June 30, 2024, respectively. 

It has also partnered with multiple insurance providers to offer bundled products to customers. It has recently, on December 22, 2023, registered itself as a corporate agent with the Insurance Regulatory and Development Authority of India ("IRDAI"), enabling it to expand suite of insurance products to include life, general, and health insurance. This expansion caters to the comprehensive insurance needs of its customers while creating an additional stream of fee income for the company.

According to the CRISIL MI&A Report as at June 30, 2024 (unless indicated otherwise), BHFL were a leading HFC in India across multiple parameters. As of the said date, the company had a footprint in 23 states/UTs, 215 branches, 174 locations and 2239 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden/combo IPO of fresh equity shares issue worth Rs. 3560 cr. (approx. 508571429 shares at the upper cap), and an Offer for Sale (OFS) worth Rs. 3000 cr. (approx. 428571429 shares at the upper cap). The company has announced a price band of Rs. 66 - Rs. 70 per equity shares of Rs. 10 each. The overall size of the issue will be approx. 937142858 shares worth Rs. 6560 cr. The issue opens for subscription on September 09, 2024, and will close on September 11, 2024. The minimum application to be made is for 214 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 11.26% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize the entire funds for augmenting its capital base and meeting future business requirements of onward lending. 

The company has reserved shares worth Rs. 200.00 cr. for its eligible employees and shares worth Rs. 500.00 cr. for shareholder's category and from the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are Kotak Mahindra Capital Co. Ltd., BofA Securities India Ltd., Axis Capital Ltd., Goldman Sachs (India) Securities Pvt. Ltd., SBI Capital Markets Ltd., JM Financial Ltd. land IIFL Securities Ltd., while KFin Technologies Ltd. is the registrar to the issue. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 11.30 - Rs. 18.10 per share between February 2020 and April 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 12.20 per share. 

Post-IPO, its current paid-up equity capital of Rs. 7819.58 cr. will stand enhanced to Rs. 8313.15 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 58297.03 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 3767.13 cr. / Rs. 709.62 cr. (FY22), Rs. 5665.44 cr. / Rs. 1257.80 cr. (FY23), and Rs. 7617.71 cr. / Rs. 1731.22 cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it earned a net profit of Rs. 482.61 cr. on a total income of Rs. 2208.73 cr. Thus it marked steady growth in its income and earnings for the reported periods. In fact, the company is the second largest fastest growing housing finance company in India across multiple parameters, as per CRISIL MI&A report. 

For the last three fiscals, the company has posted an average EPS of Rs. 2.20 and an average RoNW of 14.3%. The issue is priced at a P/BV of 3.72 based on its NAV of Rs. 18.80 as of June 30, 2024, and at a P/BV of 3.20 based on its post-IPO NAV of Rs. 21.90 per share (at the upper cap). 

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 30.17. The issue is relatively fully priced. 

The company reported NIM (Net Interest Margins) of 4.00% (FY22), 4.50% (FY23), 4.10%% (FY24), 3.90% (Q1-FY25), and RoAE margins of 11.10%, 14.60%, 15.20%, 14.30% for the referred periods, respectively. 

Net NPAs of the company stood at 0.11% as of June 30, 2024 against 0.10% as of March 31, 2024. It has posted AUM growth of 37.2% (FY22), 29.8% (FY23), 32.0% (FY24) and 31.0% (Q1-FY25), and its disbursements marked growth of 735% (FY22), 31.2% (FY23), 30.1% (FY24) and 15.6% (Q1-FY25). 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a dividend policy in June 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown LIC Housing Finance, PNB Housing Finance, Can Fin Homes, Aadhar Housing Finance, Aavas Financier, Aptus Value Housing, and Home First Finance as their listed peers.  They are trading at a P/E of 8.01, 17.0, 15.4, 23.9, 27.2, 25.2, and 30.9 (as of September 04, 2024.) However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The seven BRLMs associated with the offer have handled 91 pubic issues in the past three fiscals, out of which 21 issues closed below the offer price on the listing date. 

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