Bajaj Housing Finance

Second largest HFC

Well diversified and fast growing with lowest NPAs

Bajaj Housing Finance (BHFL) is India’s largest non-deposit taking housing finance company (HFC) registered with the National Housing Bank (NHB) since 24 September 2015. The company is a part of the Bajaj Group, a diversified business group, in existence for a century. It has undertaken mortgage lending since FY2018 and is categorized as an Upper Layer NBFC (NBFC-UL) by the Reserve Bank of India (RBI) since September 2022.

BHFL has emerged as the second largest HFC within seven years of commencing mortgage operations. The eighth largest NBFC-ULs by AUMs end March 2024, is the second most profit making HFC in India, recording the second highest loan disbursement by HFCs in India in FY2024 and Q1FY2025. It has the second highest AUM per branch and AUM per employee among large HFCs.

Financial solutions are tailored for individuals and corporate entities to purchase and renovate homes and commercial spaces. The mortgage product suite is comprehensive, comprising (i) home loans (57.5% of AUM end June 2024), (ii) loans against property (LAP) (10.0%), (iii) lease rental discounting (19.5%), and (iv) developer financing (12%). The primary emphasis is on individual retail housing loans, complemented by a diversified collection of lease rental discounting and developer loans.

BHFL recorded an AUM CAGR of 30.9% between FY2022 to FY2024 to reach Rs 91370.4 crore end March 2024, making it one of the fastest growing HFCs and NBFC-ULs. The AUM further surged to Rs 97071.33 crore end June 2024. The average ticket size of home loans was Rs 46 lakh, with an average loan-to-value ratio of 69.3% end June 2024.

Within the home loan book, about 87.5% of the customers were salaried (highest amongst large HFCs), 4.3% self-employed professional customers, and 8.2% self-employed non-professional customers. About 75.5% of home loan AUMs was from customers with a CIBIL score above 750.

There were 323,881 active customers at the end of June 2024. Of these, 83.2%were home loan customers. The network comprised 215 branches at the end of June 2024. These were spread across 174 locations in 20states and three union territories.

Direct and indirect channels are used for origination of loans. The indirect sourcing channels include a network of intermediaries such as channel partners, aggregators, direct selling agents, third party agents and connectors.

The GNPA ratio of 0.28% and the NNPA ratio of 0.11% was the lowest among large HFCs end June 2024.

Has the highest possible long-term (CRISIL AAA/stable and IND AAA/stable) as well as short-term (CRISIL A1+ and IND A1+)credit ratings for borrowings programs, enabling borrowing of funds at competitive rates from a variety of sources and, in turn, offer competitive pricing across the product suite. The total borrowings were Rs 73347.06 crore end June 2024. Bank borrowings were at 47.6%, NCDs 37.6%, NHB refinance 12.0%, commercial paper 2.5%, and inter-corporate deposits 0.3%.

BHFL has partnered with multiple insurance providers to offer bundled products to customers. Registered as a corporate agent with the Insurance Regulatory and Development Authority of India (IRDAI) on 22 December 2023, BHFL has expanded the suite of insurance products to include life, general, and health insurance, thereby creating an additional stream of fee income.

BHFL is well-capitalized with a strong financial track record. The capital adequacy ratio (CRAR) consistently exceeded the regulatory requirements.

The Offer and the Objects

The initial public offer (IPO) consists of fresh issue to raise Rs 3560 crore through issuance of 53.94 crore equity shares at the lower band of Rs 66 per share (face value Rs 10 per share) and 50.86 crore equity shares at the upper band of Rs 70 per share.

The issue includes an offer for sale (OFS) of Rs 3000 crore through issuance of 42.86-45.45 crore equity shares from the promoter, Bajaj Finance.

The offer comprise of shareholders reservation of Rs 500 crore for shareholders of Bajaj Finserv and Bajaj Finance and employee reservation of Rs 200 crore.

The promoter shareholding will decline to 87.8% post- IPO from 100% pre-IPO.

The issue is to be made through the book-building process. It will open on 09 September 2024 and close on 11 September 2024.

The net proceeds from the fresh issue will be used for augmenting the capital base to meet future capital requirements. The issue will bring the benefits of listing the equity shares on the stock exchanges, including enhancing brand image among existing and potential customers and creation of a public market for the equity shares in India.

Being classified as NBFC-UL in September 2022, the regulation requires the company to list on exchange within 3 years of classification. Thus, the IPO is also meant to comply with RBI regulations.

Strengths

Part of the Bajaj group, a retail-focused prominent Indian conglomerate known for diverse business interests across various sectors such as manufacture and financing of two and three-wheelers, life insurance, general insurance, mutual fund products, and broking services. The Bajaj brand enjoys widespread recognition as a reliable retail brand with a strong brand equity.

The wholly owned subsidiary of Bajaj Finance who is among India’s largest NBFCs based on AUM end March 2024.

The second largest HFC in India in terms of AUM with a track record of strong growth driven by a diversified portfolio. Also, the second most profit making HFC with healthy RoA of 2.3% and RoE of 14.3% in Q1FY2025.

Has a diversified and extensive array of financial solutions catering to the various needs of both retail and commercial clients.

Omni-channel sourcing strategy, strong geographic presence and distribution reach enable acquiring a large volume of customers every year.

Advanced digital solutions enhance the experiences of both customers and employees.

Well defined credit evaluation and risk management practices have led to the lowest GNPA and NNPA among peers.

The highest possible credit rating facilitates access to diversified and cost-effective sources of borrowing.

Government of India has been pursuing various social welfare schemes and initiatives to enhance the flow of credit to the housing sector and increase home ownership in India.

Weaknesses

Maharashtra accounts for close to one-third of AUM at 32%, followed by Karnataka 22.7%, Telangana 14.8%, Gujarat 8.1% and Delhi 7.6%. The Top 5 states accounted for 85.2% of the overall AUM end June 2024.

The primary security for mortgage business is the underlying property and collateral. Thus, the performance depends on the real estate sector in India.

A non-exclusive intermediaries channel accounted for 43.1% of the home loans sourced in Q1FY2025.

Loans to the top 10 largest customers accounted for 6.2% and the top 20 for 8.8% of the total outstanding loans. These are mainly from lease rental discounting and/ or developer financing loans segment.

The housing finance industry is highly competitive. Competition includes banks, HFCs, small finance banks, and NBFCs.

Valuation

BHFL is the second largest and the fastest growing HFC in India, with the best asset quality. They have a diversified product suit as well as geographic presence. The financial performance has remained consistent through various external events in the Indian economy.

EPS on post-issue equity works out to Rs 2.1 for the TTM ended June 2024. At the price band of Rs 66 to Rs 70, the P/E works out to 31.5 to 33.3 times of EPS for the TTM ended June 2024.

Post-issue, the book value (BV) will be Rs 21.9, while adjusted BV (ABV) net of net NPAs works out to Rs 21.8 per share at the upper price band. The scrip is being offered at price to Adj BV multiple of 3.2 times at the upper price band.

Among peer HFCs, Can Fin Homes is trading at P/ Adj BV multiple of 2.7 times, PNB Housing Finance at 1.8 times, and LIC Housing Finance at 1.5 times. Among the affordable HFCs, Home First Finance is trading at 4.8 times, Aptus Value Housing Finance 4.3 times, Aavaas Financiers 3.6 times, India Shelter Finance at 3.5 times and Aadhar Housing Finance at 3.3 times.

Can Fin Homes trades at 15.3 times its EPS for TTM ended June 2024, PNB Housing Finance at 16.3%, and LIC Housing Finance at 8.0 times. Among the affordable HFCs, Home First Finance is trading at 30.9 times, India Shelter Finance at 28.7 times, Aavas Financiers 27.0 times, Aptus Value Housing Finance 25.0 times and Aadhar Housing Finance 22.4 times.

The ROA of Bajaj Housing Finance was at 2.1% in FY2024. Among the peers, the RoA of PNB Housing Finance was at 2.1%, Can Fin Homes was 2.1% and LIC Housing Finance 1.7%. The RoA of affordable HFCs was higher in the range of 3.0% to 6.8% for FY2024.

ROE for Bajaj Housing Finance was at 14.2% as compared with Can Fin Homes at 17.3%, LIC Housing Finance 15.1% and PNB Housing Finance at 10.1% in FY 2024.

Bajaj Housing Finance is the fastest growing large HFC and recorded strong 31% year on year growth in AUM to Rs 97071 crore end June 2024. The AUM of Can Fin Homes increased 9% to Rs 32505 crore end June 2024, followed by PNB Housing Finance 8% to Rs 72540 crore, and LIC Housing Finance 4% to Rs 288665 crore end June 2024.

The GNPA ratio of Bajaj Housing Finance was the lowest at 0.28% end June 2024. Among the peers, the GNPA ratio of Can Fin Homes was at 0.91%, PNB Housing Finance 1.35%and LIC Housing Finance 3.3% end June 2024.

The NNPA ratio of Bajaj Housing Finance was also the lowest at 0.11%, while that of Can Fin Homes was at 0.49%, PNB Housing Finance 0.92%and LIC Housing Finance 1.66% end June 2024.