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Bajaj Housing Finance (BHFL), the second-largest mortgage lender in India after LIC Housing Finance, is poised to raise Rs 6,560 crore through a fresh share offering. This move underscores the company's strategic objective to bolster its capital base and capitalize on the burgeoning housing market in India. The IPO, which is expected to be finalized in the coming months, will involve a fresh issue of shares worth Rs 3,560 crore and an offer for sale of shares worth Rs 3,000 crore.
The promoter, Bajaj Finance, currently holds a 100% stake in BHFL. Through the IPO, the promoter intends to dilute its stake by over 11%, ultimately retaining an 88.7% stake in the company. BHFL has experienced remarkable growth since its entry into the mortgage lending sector in 2018. Despite fierce competition, the company has maintained high asset quality and a stable net interest margin (NIM). This success can be attributed to the company's strategic focus on leveraging the robust growth of the Indian housing market. BHFL's diversified lending portfolio, which encompasses home loans, loan against property (LAP), lease rental discounting, and developer financing, has played a pivotal role in its expansion.
Home loans constitute a significant portion of the company's assets under management (AUM), representing over 57%. Lease rental financing accounts for nearly 20% of the AUM. BHFL's AUM has witnessed a remarkable 29.3% annual growth rate, rising from Rs 91,370.4 crore in FY20 to Rs 97,071.3 crore at the end of June 2024. This growth trajectory has placed BHFL as a significant player in the Indian mortgage lending landscape. The company's average loan-to-value ratio stands at 69.3%, with an average loan ticket size of Rs 46 lakh as of June. These metrics indicate a well-balanced lending strategy that prioritizes responsible risk management.
The company's financial performance highlights its strong fundamentals. Net interest income witnessed a substantial 35.6% annual growth, reaching Rs 2,509.8 crore between FY22 and FY24. Net profit surged by 56.2% to Rs 1,731.2 crore during the same period. BHFL's NIM has consistently remained at or above 4%, signifying its efficient management of interest rates and lending operations. Furthermore, the company's gross nonperforming assets (GNPA) ratio has been consistently below 0.3%, highlighting the low credit risk associated with its lending portfolio. While the cost of borrowings has edged up to 7.6% in FY24 from 5.9% in FY22, the company's return on assets (RoA) has improved to 2.4% from 1.8% during the period.
BHFL's valuation reflects the market's confidence in its future prospects. Based on its total equity after the IPO, the company demands a price-book (P/B) multiple of 3.2. This valuation premium is justified by BHFL's rapid AUM growth, its diverse lending offerings, its low credit cost, and its superior asset quality. In comparison, LIC Housing Finance and PNB Housing Finance trade at P/B multiples of 1.2 and 1.8, respectively. This suggests that investors are willing to pay a premium for BHFL's robust growth trajectory, which is expected to be fueled by the continued expansion of the Indian housing market. Investors seeking exposure to this growing sector may consider the BHFL IPO as a compelling opportunity.
Source: Bajaj Housing looks well placed to benefit from rising housing demand