Bajaj Housing Finance: IPO review and detailed analysis

Summary

The video discusses Bajaj Housing Finance's IPO, the largest in India for 2024, with an aim to raise 6500 crores. It explores the company's business model, industry outlook, financial performance, and valuations. The script highlights the company's strong fundamentals, growth potential, and the reputation of its parent group, Bajaj Finance. However, it also points out concerns such as high promoter selling, litigation risks, and competitive challenges in the housing finance sector, urging investors to consider these factors before investing.

Takeaways

• 🏢 Bajaj Housing Finance is set to be the largest Housing Finance Company in India by market cap with its IPO, indicating significant industry presence.
• 📈 The company aims to raise approximately 6500 crores, making it the largest IPO of 2024 by issue size, showcasing substantial market confidence.
• 🏘️ With a focus on home loans and lease rental discounting, Bajaj Housing Finance caters to a broad segment of the housing finance market.
• 📊 Bajaj Housing Finance has demonstrated impressive revenue and profit growth of 42% and 56% per annum over the last two years, respectively.
• 🏦 The company operates as a 100% subsidiary of Bajaj Finance, which is already a listed NBFC, providing it with a strong parent company background.
• 💼 Bajaj Housing Finance's business model includes direct and indirect channels for loan origination, ensuring a diverse approach to reaching customers.
• 🌐 The Indian housing finance industry is poised for growth, with government initiatives and economic expansion driving demand for housing loans.
• 📉 The company's financials show a strong performance with high return on equity and good net interest margins compared to its peers.
• 📚 Bajaj Housing Finance's valuation at the upper price band of 70 indicates a premium valuation compared to its peers, which may affect investor returns.
• ⚖️ There are concerns regarding the promoter selling shares at a high premium to the acquisition price and the presence of litigations, which could impact investor sentiment.

Q & A

What was highlighted as a key priority in the union budget for FY25?

Urban Development was highlighted as a key priority in the union budget for FY25, with housing being an integral part of it.

How much investment has been proposed under PMAY Urban 2.0 to fulfill housing needs?

An investment of 10 lakh CR has been proposed under PMAY Urban 2.0 to fulfill the housing needs of 1 CR urban poor and middle-class families.

What is the significance of Bajaj Housing Finance's IPO in terms of market cap and issue size?

Bajaj Housing Finance's IPO is significant as, at the upper price band, it will have a market cap of over 58,000 CR, making it the largest Housing Finance Company in India in terms of market cap. It is also the biggest IPO in 2024 so far by issue size, raising around 6500 crores.

What is the business model of Bajaj Housing Finance?

Bajaj Housing Finance is a non-deposit taking Housing Finance Company that deals in home loans, loans against property, lease rental discounting, and developer financing. It operates through both direct and indirect channels for loan origination.

What is the credit rating of Bajaj Housing Finance, and how does it benefit the company?

Bajaj Housing Finance enjoys the highest credit rating of CRISIL AAA for long-term borrowings and CRISIL A1+ for short-term borrowings. This allows it to borrow funds at competitive rates.

What are the key growth drivers for the housing industry in India?

Key growth drivers for the housing industry in India include the country's projected economic growth, stable repo rates, government initiatives like PMAY, a growing population, an increasing urban population, rising GDP per capita, and a preference for physical assets over financial assets.

How does Bajaj Housing Finance compare with its peers in terms of financial performance?

Bajaj Housing Finance has shown stellar revenue and profit growth of 42% and 56% per annum over the last two years, outperforming its peers. It also has a better return on equity and net interest margin compared to most of its peers.

What is the Price to Book Ratio of Bajaj Housing Finance at the upper price band, and how does it compare with its peers?

At the upper price band of 70, Bajaj Housing Finance's Price to Book Ratio is 3.72. This is steeper compared to its peers and the industry median, indicating a higher valuation.

What are the key concerns mentioned in the company's Red Herring Prospectus (RHP)?

The RHP of Bajaj Housing Finance mentions several risk factors, including concentration of assets in specific regions, litigations against the company and its promoters, potential conflicts of interest due to similar businesses within the group, and concentration of loans on certain customers.

What are the implications of the promoter selling shares through the offer for sale (OFS) in the IPO?

The promoter selling shares through the OFS at a steep premium compared to their recent acquisition price could indicate opportunistic behavior and raises concerns about the valuation and the promoter's commitment to the company's long-term growth.