Highlights
| Issue Size –: 937,142,858 shares | Issue Open/Close – 9 Sept / 11 Sept 2024 |
| Price Band (Rs.) 66-70 | Issue Size (Rs.) – 65,600 mn |
| Face Value (Rs) 10 | Lot Size (shares) 214 |
Bajaj Housing Finance Limited (BHFL) part of giant Bajaj Group, was incorporated in 2008 and is a non-deposit taking Housing Finance Company (HFC), registered with the National Housing Bank (NHB) and engaged in mortgage lending since FY18. They have been identified and categorized as an Upper Layer NBFC (NBFC-UL) in India by the RBI.
The company offers financial products to individuals and corporate entities for the purchase and renovation of homes and commercial spaces. Their mortgage product suite is comprehensive and comprises (i) home loans (ii) loans against property (LAP) (iii) lease rental discounting and (iv) developer financing.
BHFL primary emphasis is on individual retail housing loans, complemented by a diversified collection of lease rental discounting and developer loans. Consequently, their financial products cater to every customer segment, from individual homebuyers to large-scale developers. As at Q1FY25, the AUM of the company stood at Rs. 970,713 mn. The average ticket size of their loan was Rs. 4.6 mn, with an average loan to value (LTV) ratio of 69.3 pct. Majority (75.5 pct) of company’s home loan AUM were from customers with a CIBIL score above 750.
To support their offerings, they had a network of 215 branches as at Q1FY25 spread across 174 locations in 20 states and 3 union territories, which are overseen by 6 centralized hubs for retail underwriting and seven centralized processing hubs for loan processing. BHFL diversified reach helps them meet the specific needs of their target customers across geographies, in urban as well as upcountry locations.
Out of the total proceeds of Rs. 65,600 mn, Rs. 35,600 mn would go towards augmenting their capital base to meet future business requirements of the company towards onward lending. Since the company continues to grow their loan portfolio and asset base, it will require additional capital in order to continue to meet applicable capital adequacy ratios with respect to its business and Rs. 30,000 mn would go towards existing selling shareholders of the company.
Key Highlights
- As per reports overall housing segment to grow at a CAGR of 13-15 pct from FY24 to FY27. the housing shortage in India was expected to rise to 100 million units by 2022, with an estimated demand for housing loans between Rs. 50 trillion to Rs. 60 trillion to address this issue. As of FY23, the total overall outstanding housing loans (excluding PMAY loans) were approximately Rs. 28.7 trillion, highlighting the significant market potential if measures are implemented to address this shortage and BHFL is well positioned to capitalize this shortage.
- The company has the highest possible credit ratings in India for both the long term (CRISIL AAA/stable and IND AAA/stable) as well as short term (CRISIL A1+ and IND A1+) borrowings programme. Their strong domestic credit ratings along with the experienced treasury management team, have enabled them to borrow funds at competitive rates from a variety of sources.
- As BHFL is the non-deposit taking Housing Finance company, 51 pct of the company’s borrowing comes from Banks, 35 pct is from NCD, 10 pct is from NHB and rest from other sources. They have established relationships with 23 banks ensuring diversified borrowing portfolio.
- BHFL adopted an omni-channel sourcing strategy of having physical presence with an option of accessing digital onboarding functionality to maximize reach, cater to different customer preferences and streamline the loan application process, thus enhancing customer experience and strengthening their market share.
- Their retail products, such as home loans and LAP, and commercial products, like developer finance and lease rental discounting, each have unique underwriting structures. Retail underwriting is executed through a centralized hub model to ensure consistency and control, while commercial underwriting employs a hybrid approach, combining field due diligence with centralized team review.
- Company’s key strategies include (i) Continue to leverage technology and analytics to enhance productivity, reduce expenses, improve customer experience and manage risks (ii) Diversifying and strengthening market presence with strategic customer focus and comprehensive risk management (iii) Continue to diversify their borrowing profile to optimize borrowings costs (iv) Continue to attract, train and retain talented employees.
- The AUM of the company has grown by 30.90 pct CAGR over FY22-24 while profit of the company has grown by 56.19 pct CAGR over the same period. The company’s operating cost to net total income ratio is fell 29.2 pct in FY22 to 24 pct in FY24. However, the GNPA of the company increased by 1 bps QoQ to 0.28 pct in Q1FY25 and NNPA increased by 1 bps QoQ to 0.11 pct in Q1FY25.
Key Risk
- BHFL AUM are concentrated in 4 states (77.6 pct of AUM) and any adverse developments in these regions could have an adverse effect on BHFL business.
- Any negative events affecting the Indian real estate sector could adversely affect the value of the collateral for BHFL’s loans, business and result of operations.
Financial Performance
| Financial Metrics | FY22 | FY23 | FY24 | Q1FY24 | Q1FY25 |
| AUM (Rs. mn) | 533217 | 692279 | 913704 | 741243 | 970713 |
| Disbursements (Rs. mn) | 261752 | 343336 | 446562 | 103825 | 120035 |
| Net worth (Rs. mn) | 67414 | 105032 | 122335 | 109650 | 147199 |
| Profit and Loss Metrics | |||||
| Total Income (Rs. mn) | 37671 | 56654 | 76177 | 17634 | 22087 |
| Profit (Rs. mn) | 7096 | 12578 | 17312 | 4618 | 4826 |
| Yield on Advances (%) | 8.70% | 9.70% | 10.20% | 10.40% | 10.00% |
| Cost of Borrowing (%) | 5.90% | 6.70% | 7.60% | 7.60% | 7.90% |
| Spread (%) | 2.80% | 3.00% | 2.60% | 2.80% | 2.10% |
| Cost to Net Total Income Ratio (%) | 29.20% | 25.70% | 24.00% | 24.00% | 21.00% |
| GNPA (%) | 1.10% | 1.50% | 1.20% | 1.80% | 1.40% |
| NNPA (%) | 0.70% | 1.10% | 0.80% | 1.30% | 1.00% |
| Balance Sheet Metrics | |||||
| RoA (%) | 2.30% | 2.90% | 2.40% | 2.30% | 1.80% |
| RoE (%) | 14.30% | 17.20% | 15.20% | 14.60% | 11.10% |
| Debt to Equity (x) | 5 | 5.3 | 5.7 | 5.1 | 6.2 |
Peer Comparison based on FY24
| Financial Metrics | Bajaj Housing Finance Limited | LIC Housing Finance | PNB Housing Finance | Can Fin Homes | Aavas Financiers |
| AUM (Rs. mn) | 913704 | 2868440 | 712430 | 349990 | 173126 |
| Disbursements (Rs. mn) | 446562 | 589370 | 175830 | 81770 | 55822 |
| Net worth (Rs. mn) | 122335 | 313946 | 149324 | 43438 | 37733 |
| Profit and Loss Metrics | |||||
| Total Income (Rs. mn) | 76177 | 272346 | 70240 | 35247 | 20203 |
| Profit (Rs. mn) | 17312 | 47654 | 15274 | 7507 | 4907 |
| Yield on Advances (%) | 10.20% | 9.90% | 11.00% | 10.60% | 13.60% |
| Cost of Borrowing (%) | 7.60% | 7.40% | 7.80% | 7.30% | 7.50% |
| Spread (%) | 2.60% | 2.50% | 3.10% | 3.30% | 6.10% |
| Cost to Net Total Income Ratio (%) | 24.00% | 13.00% | 22.40% | 19.90% | 45.60% |
| GNPA (%) | 1.20% | 3.31% | 1.50% | 0.82% | 0.94% |
| NNPA (%) | 0.80% | 1.63% | 0.95% | 0.42% | 0.67% |
| Balance Sheet Metrics | |||||
| RoA (%) | 2.40% | 1.70% | 2.50% | 2.30% | 3.90% |
| RoE (%) | 15.20% | 16.30% | 11.80% | 18.80% | 13.90% |
| Debt to Equity (x) | 5.7 | 8 | 3.7 | 7.3 | 3.3 |
Valuation
Bajaj Housing Finance Limited (BHFL) backed by Bajaj Group, is one of the most diversified NBFCs in the Indian market, catering to more than 88.11 mn customers across the country. The Company is rated AAA/Stable for its long-term debt programme and A1+ for its short-term debt programme from CRISIL and India Ratings. The company is 2nd largest HFC and is poised to benefit from growth in the housing finance Industry. At the upper end of the price band of Rs. 70 the issue quotes at P/BV of ~3.2x based on Q1FY25 post issue fully diluted Book value. One can subscribe from a longer term perspective.
Also read: Why Is Financial Advisory Important?
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