Bajaj Housing Finance: Philip Capital Gives 'BUY' Rating After Stellar IPO Debut, Sees Upside; Check TP

Following an impressive stock market debut, Bajaj Housing Finance Ltd (BHFL) continues to gain momentum. After a 159% rally from its IPO price of Rs 70 to its new high of Rs 181.48 on September 17, brokerage house Phillip Capital has forecast further upside potential for the stock. The brokerage sees an additional 27% rise over the next year, with the possibility of a 35% surge in a bullish scenario.

Phillip Capital has initiated coverage on Bajaj Housing Finance with a "Buy" recommendation, lauding the company's strategic positioning in the housing finance market. The brokerage highlighted the company's focus, especially its dominance in the salaried home loan segment, stable expense ratios, and manageable credit costs, which contribute to return ratios.

In its evaluation, Phillip Capital presented three scenarios: base, bear, and bull cases. The brokerage used a Price-to-Earnings (P/E) multiple of 30x, which is around 20% below Bajaj Finance's +1 standard deviation, and applied a conservative 15% hold-co discount despite no tax obligation for such a discount. The base case was given a 50% weight, the bear case 40%, and the bull case 10%. This multi-layered evaluation underscores Phillip Capital's confidence in the company's long-term potential, especially given its robust fundamentals and market position.

IPO and Market Performance
Bajaj Housing Finance's IPO, which ran from September 9 to 11, was one of the most successful listings in recent memory. The offering was oversubscribed by 63.61 times, with bids for over 4,628 crore equity shares against the 72.75 crore shares available. This overwhelming demand raised the value of the applications to nearly Rs 3.24 lakh crore. The company raised Rs 6,560 crore through a combination of fresh issue and offer-for-sale (OFS), with Rs 3,560 crore coming from the fresh issue and Rs 3,000 crore from the OFS.

Shares debuted at Rs 150 per share on both the BSE and NSE, representing a 114.29% premium over the issue price of Rs 70. The stock has continued to perform strongly, reaching an all-time high of Rs 181.48 on September 17, reflecting a 159% rally since its listing. As of 12:30 pm on September 17, shares were locked at the 10% upper circuit at Rs 181.50 on the National Stock Exchange (NSE).

Phillip Capital projects Bajaj Housing Finance to emerge as one of India's top four mortgage players in the medium term. In just six years of operation, BHFL has established itself among the top seven mortgage originators and the top three housing finance companies (HFCs) in India. The company's gross non-performing assets (NPA) remain low, between 0.6% and 0.8%, reflecting its solid underwriting standards and focus on low-risk segments.

BHFL has leveraged its parent company, Bajaj Finance, to tap into an extensive customer base of 88 million. This allows BHFL to gain deep insights into customer behaviour and target specific segments for cross-selling opportunities. Bajaj Finance has also provided capital support, infusing Rs 2,500 crore in FY23 and an additional Rs 2,000 crore through a rights issue. This capital infusion brings the total to Rs 9,500 crore.

The brokerage emphasized BHFL's edge in the home loan market, where it primarily caters to salaried home loan customers with an average annual income of Rs 14 lakh. This target demographic allows BHFL to offer competitive pricing while maintaining higher yield top-up loans in a crowded sector.

Risk management remains a key strength for BHFL. About 40% of its home loans are sourced from existing Bajaj Finance customers, and nearly 90% of its borrowers are salaried individuals. This focus on salaried customers contributes to lower operational costs, improved risk-adjusted spreads, and superior return ratios compared to its peers.

Loan Against Property (LAP) and Cost Efficiency
BHFL's Loan Against Property (LAP) portfolio is another area where it excels, with approximately 70% of loans linked to self-occupied residential properties. This focus on lower-risk, self-occupied properties, coupled with a loan-to-value (LTV) ratio of around 45%, enhances its return ratios and cost efficiency.

As the company expands, its Assets Under Management (AUM) per branch is approaching that of LIC Housing Finance (LICHF), while its AUM per employee rivals that of Can Fin Homes. Despite this operational efficiency, BHFL still enjoys better borrowing costs compared to Can Fin Homes.

Growth Outlook
Phillip Capital expects Bajaj Housing Finance to maintain its strategic focus on high-yield segments, particularly the Rs 50 lakh ticket size that accounts for 65% of home loan originations in India. Additionally, the company's growing interest in Lease Rental Discounting (LRD) and its carefully managed construction finance (CF) portfolio, which is expected to remain between 8% and 10% of its total book, are considered strong growth drivers.

The brokerage forecasts that BHFL's balance sheet will exceed Rs 2 lakh crore within the next three years. In the short term, credit costs are expected to remain benign, and the company's focus on building a low-risk balance sheet is projected to yield a robust Return on Assets (RoA) of over 2% and Return on Equity (RoE) above 12% by FY25-27.