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.

Outlines

00:00

🏢 Overview of Bajaj Housing Finance's IPO

The video script discusses the upcoming IPO of Bajaj Housing Finance, which is set to be the largest in 2024 by issue size, raising around 6500 crores. The company is a non-deposit taking Housing Finance Company headquartered in Pune, and it is a 100% subsidiary of Bajaj Finance. The script highlights the company's business model, which includes home loans, loans against property, lease rental discounting, and developer financing. It also touches on the company's funding sources, with a significant portion coming from banks and NCDs, and its high credit ratings that allow it to borrow at competitive rates. The video aims to help viewers decide whether to invest in the IPO, and it suggests watching another video for additional insights on successful IPO investing.

05:01

📈 Bajaj Housing Finance's Financial Performance and Industry Outlook

This section of the script delves into Bajaj Housing Finance's financial performance, showing impressive revenue and profit growth over the last two years. It compares the company's financials with its peers in the housing finance sector, highlighting its strong return on equity and net interest margins. The script also discusses the industry outlook for housing finance, emphasizing India's economic growth, stable repo rates, and government initiatives as key drivers for the housing industry. The video mentions various factors contributing to the growth of the housing sector, such as India's large and growing population, increasing urbanization, rising GDP per capita, and the preference for physical assets over financial assets.

10:01

🔍 Critical Evaluation of Bajaj Housing Finance's IPO

The final part of the script evaluates the IPO of Bajaj Housing Finance based on several critical criteria. It addresses the mix of fresh issue and offer for sale (OFS), the use of IPO proceeds, the company's past share issuances, litigations against the company and its promoters, and the company's risk factors as outlined in its Red Herring Prospectus (RHP). The script points out potential red flags, such as the promoter selling shares at a premium compared to their acquisition price and the significant litigations involving the promoters. It also notes the company's concentrated business in certain regions and customers, which could pose risks. The video concludes by weighing the positives, such as the company's rapid growth and strong fundamentals, against the challenges and competition it faces, leaving the decision to invest to the viewer's discretion.

Keywords

💡Union Budget

The Union Budget refers to the annual financial statement of the government of India, which outlines the government's revenue and expenditure for the next financial year. In the context of the video, the Finance Minister's mention of Urban Development as a key priority in the budget signifies the strategic importance of housing and urban infrastructure projects for the country's economic growth and social development.

💡Urban Development

Urban Development pertains to the planning, construction, and management of urban areas to ensure they are sustainable, livable, and economically vibrant. The video emphasizes housing as a crucial component of urban development, reflecting the Indian government's focus on improving housing conditions for the urban poor and middle class through significant financial investments.

💡PMAY Urban 2.0

PMAY Urban 2.0, or Pradhan Mantri Awas Yojana Urban 2.0, is a flagship program by the Indian government aimed at providing affordable housing for all by 2022. The video mentions an investment of 10 lakh CR to fulfill the housing needs of 1 CR urban poor and middle-class families, highlighting the scale and ambition of this initiative.

💡Housing Finance Companies

Housing Finance Companies are non-banking financial institutions that provide loans to individuals for purchasing, constructing, or renovating homes. The video discusses how investing in housing finance companies can be a way to profit from the housing theme, as these companies are expected to benefit from the increased demand for housing loans driven by government initiatives and economic growth.

💡IPO (Initial Public Offering)

An IPO is the first sale of stock by a company to the public, often a significant milestone that allows the company to raise capital and provides an opportunity for investors to buy shares at the initial offering price. The video discusses the upcoming IPO of Bajaj Housing Finance, which is set to be the largest IPO of 2024 by issue size, indicating the company's potential and the investor interest in the housing finance sector.

💡Market Cap

Market Capitalization, or market cap, is the total value of a company's outstanding shares of stock and is calculated by multiplying the number of shares by the current market price per share. The video states that Bajaj Housing Finance will have a market cap of over 58,000 CR at the upper price band, making it the largest Housing Finance Company in India in terms of market cap, which signifies its size and influence in the market.

💡NBFC (Non-Banking Financial Company)

NBFCs are companies that provide various financial services like loans, insurance, and investment options but are not banks. In the script, Bajaj Housing Finance is described as a 100% subsidiary of Bajaj Finance, which is an NBFC. This distinction is important as NBFCs often have different regulatory requirements and operate in niche segments of the financial market.

💡Asset Under Management (AUM)

AUM refers to the total market value of investments managed by a financial institution. The video mentions Bajaj Housing Finance's AUM of over 97,000 CR, positioning it as the second-largest Housing Finance Company in India after LC Housing Finance, indicating the scale of its operations and its capacity to manage substantial assets.

💡Credit Rating

A credit rating is an evaluation of a company's or an individual's credit risk, which is the likelihood that they will fulfill their contractual financial obligations. The video highlights that Bajaj Housing Finance enjoys the highest credit rating of CRISIL AAA and CRISIL A1+ for both its long-term and short-term borrowings, which allows it to borrow funds at competitive rates and reflects its financial stability.

💡Repo Rates

Repo rates are the interest rates at which central banks lend money to commercial banks in the short term. The video discusses how stable repo rates in India have influenced home loan interest rates, impacting the demand for housing loans. Stable or falling repo rates can make home loans more affordable, thereby boosting the housing market.

💡Gross Non-Performing Assets (GNPA)

GNPA refers to the total amount of loans in a bank's or financial institution's portfolio that are overdue by 90 days or more. The video compares Bajaj Housing Finance's GNPA with its peers, noting that a lower GNPA is preferable as it indicates a lower risk of loan defaults. Bajaj Housing Finance's significantly lower GNPA compared to LIC Housing Finance is presented as a positive sign of its financial health.

Highlights

Urban Development is a key priority in the union budget for FY25, with housing as an integral part.

PMAY Urban 2.0 proposes an investment of 10 lakh CR to fulfill housing needs for 1 CR urban poor and middle-class families.

Betting on housing finance companies is one way to profit from the housing theme.

Bajaj Housing Finance is set to debut on stock exchanges, with an IPO opening on 9th September.

At the upper price band, Bajaj Housing Finance will have a market cap of over 58,000 CR, making it India's largest Housing Finance Company by market cap.

Bajaj Housing Finance is raising around 6500 crores, marking it as the biggest IPO in 2024 by issue size.

The company is headquartered in Pune and operates as a non-deposit taking Housing Finance Company.

Bajaj Housing Finance is a 100% subsidiary of Bajaj Finance, which is already a listed NBFC.

As of June 2024, about 58% of the company's assets were in home loans, followed by lease rental discounting loans of 20%.

The company relies on external sources for funds, with 47% of borrowings from banks and 38% through NCDs.

India's economy is expected to grow by 6.8% in FY25, providing a boost to the housing industry.

Bajaj Housing Finance has shown stellar revenue and profit growth of 42% and 56% per annum over the last 2 years.

The company's net interest margins are strong, indicating good profitability.

Bajaj Housing Finance has a lower bad loan ratio compared to its peers, indicating better asset quality.

The IPO has a steeper valuation compared to its peers, with a Price to Book Ratio of 3.72 at the upper price band.

The IPO comprises both a fresh issue and an offer for sale, with the promoter selling a significant stake.

Litigations against the company and promoters, along with concentrated business risks, are potential concerns for investors.

The company's loans are concentrated on certain customers, with the top 10 customers accounting for 6.2% of its loans.

Investors have multiple options in the Housing Finance space, and Bajaj Housing Finance's long-term worthiness remains to be seen.

Transcripts

[Music]

in the union budget for fi25 the Finance

Minister mentioned Urban Development as

a key priority and housing is an

integral part of urban development now

under the pmas yoga Urban 2.0 an

investment of 10 lakh CR has been

proposed to fulfill the housing needs of

1 CR Urban poor and middle class

families this makes housing a hot theme

which we discussed in a recent video now

one way of profiting from the housing

theme is to bet on housing finance

companies now until July 2023 sdfc

limited was the big daddy of the sector

but then it merged with sdfc bank now

more than a year later another big

Housing Finance company is set to debut

on the stock exchanges the company is

Bajaj Housing Finance the IPO opens on

9th September and closes on September

11th at the Upper price band Bajaj

Housing Finance will have a market cap

of over 58,000 CR this makes it the

largest Housing Finance Company in India

in terms of market cap now baj housing

is Raising around 6500 crores which

makes it the biggest IPO in 2024 so far

by issue size so should you invest in

this IPO before or after listing this

video will help you decide that but

before I start something important

successful IPO investing requires not

just analysis but also knowing some

secret IPO hacks we discussed them in a

video earlier so after you have watched

this video do watch that one as well now

divided this video in certain sections

which are on your screen let's start

with understanding Bajaj housing

finances

[Music]

business headquartered in Pune Bajaj

Housing Finance is a non-deposit taking

Housing Finance Company it started its

operation only in F18 so it's a

relatively new company in the sector now

in terms of its a with an a of over

97,000 CR it is the second largest

Housing Finance Company in India after

LC Housing Finance whose a stands at

2.89 lakh CR now baj Housing Finance is

a 100% subsidiary of baj Finance which

is already a listed nbfc with a market

cap of 4.58 lakh CR and assets of 3.76

lakh CR as of June

2024 now baj Housing Finance deals in

home loans loans against property lease

rental discounting and developer

financing lease rental discounting is a

loan offered on rent generating

properties now as of June 2024 about 58%

of the company's a was home loans

followed by lease rental discounting

loans of 20% now the company has direct

and indirect channels for the

origination of its loans under its

direct Channel it generates business

through strategic partnership with

developers Direct Customer engagement

and digital channels under its indirect

Channel Channel it gets business through

a distribution network of intermediaries

such as Channel Partners aggregators

direct selling agents and third party

agents now since this company doesn't

accept deposits it relies on external

sources for its fund requirements as of

June 2024 47% of the company's

borrowings originated from Banks and 38%

through ncds the company enjoys the

highest credit rating chrysal AAA and

chrysle A1 Plus for both its long-term

and shortterm borrowings this allows it

to borrow funds at competitive rates all

right let's now take a look at the

industry

[Music]

Outlook the growth of housing is

directly connected to the growth in the

economy and this puts Bajaj Housing

Finance in a Sweet Spot India is

expected to be one of the fastest

growing economies for the years to come

in projected terms the economy is

expected to grow by 6.8% in fi25 until f

29 the projected growth rate is expected

to be in the 6 to 7% range now repo

rates which directly influence the rate

of interest to be paid on home loans

have remained stable in India over the

last few quarters as inflation moderates

they can very well fall as well this is

expected to boost demand for Home Loans

now many government initiatives are also

providing Tailwinds for the Housing

Industry this includes the estimated

11.1 lakh CR capital expenditure by the

government in fi2 5 also 2.2 lakh CR

have been allocated to Major rural

schemes such as PM kissan saman nidi

manrega PM grh Sak yoga and PM AAS yoga

rural this is 12.6% higher as compared

to fy2 24 allocation plus as we saw at

the start of this video under the PM AAS

yoga Urban 2.0 an investment of 10 lakh

CR has been proposed to fulfill the

housing needs of 1 CR Urban poor and

middle class families now other key

growth drivers include India's

population which is the largest in the

world and is expected to keep growing a

rising share of the urban population as

a percentage of the total population a

rising GDP per capita a low percentage

of the population borrows from the

formal sources so it is expected to rise

Indians prefer physical assets as

savings revenues over Financial assets

and so on so the Housing Industry does

seem to be quite well placed if you

would like to know more about the

sectors and stocks that will benefit

from the housing tee you can watch our

video on the stocks for the next 5 years

the link is in the description all right

let's move on to the company's

financials

[Music]

now let's first check the revenue and

profit growth Bajaj Housing Finance has

had Stellar revenue and profit growth of

42% and 56% perom over the last 2 years

let's compare it with the revenue and

profit growth of the top three listed

housing finance companies by revenues

Bajaj Housing Finance does better than

its peers but note that even the peers

growth rate are quite attractive that's

again a Testament of the growth

potential in this industry next let's

check the return on Equity of baj

Housing Finance versus its peers now baj

Housing Finance is ahead of LIC housing

and pnb housing but it lags behind Canin

homes next comes net interest margins or

Nim net interest margin is the

equivalent of profit margin for finance

companies the higher the N the better

here also Bajaj Housing Finance does

well only P&B Housing Finance matches

its n next let's check the bad loan

picture of baj housing Wier it spear the

lower the bad loans the better here baj

housing does significantly better than

its peers especially LIC Housing Finance

whose gross non-performing assets are

over 3% so overall key financial suggest

that baj housing is fundamentally quite

strong but fundamental strength alone

doesn't guarantee success in the stock

market valuations matter too so let's

check Bajaj housing's valuation wither

its

[Music]

peers for finance companies The Price to

Book Ratio or the PB ratio is the go-to

measure to assess valuations it is

derived by dividing the stock price by

the book value per share now as of June

2024 Bajaj housing's book value per

share is 18 .8 at the Upper price band

of 70 the PB ratio comes out to be

3.72 now let's compare this with the PB

ratios of its listed peers Bajaj Housing

Finance has a steeper valuation as

compared to its peers and the industry

median let's check some key IPO details

now but before that let me ask you to

subscribe to this channel if you aren't

already a subscriber and don't forget to

press the Bell icon so you never miss a

video from us

on your screen are the key details of

the baj Housing Finance IPO the total

IPO size of baj Housing Finance is 6560

crores which makes it the largest IPO of

2024 by issue size the second position

comes ol electric which rais 61,000 cror

in August 2024 now the IPO comprises

both a fresh issue as well an offer for

sale or offs in a fresh issue new Shares

are issued and in an offs existing

shareholders sell their stake if an IPO

just offs you should be careful as the

company is not going to benefit from it

on the contrary its existing

shareholders are parting with their

stake so that requires some scrutiny now

the existing shareholder selling the

stake in the offs is the promoter of baj

Finance itself the IPO opens on 9th

September and closes on 11th September

as we discussed at the start of the

video the IPO price ban is 66 to 70 if

you apply for this IPO and want to

increase your chances of getting an a

lot M you should apply at the cut of

price or the Upper price band the

minimum investment by retail investor in

this IPO is about 15,000 rupees the

total shareholding preissue is 780 Crow

shares it will increase to 833 Crow

shares post the IPO that's the change of

51 Crow shares now there's also a quota

for the shareholders of baj finance and

Bajaj fin serve in this IPO under this

quota a shareholder can make an

application of a maximum of 2 lakh all

right let's now try to evaluate this IPO

through some critical IPO related

criteria we discussed this in our video

on how to analyze IPOs so do watch that

video for more

[Music]

details the first is the fresh issue

versus offs now this IPO has both in the

ratio of 54% to 46% the significant offs

portion indicates that apart from

Raising capital for the company the

promoter is also looking at Monetary

benefits for itself the second is the

use of IPO proceeds now the offs

proceeds will go to Bajaj finance and

the stated reason for the proceeds from

the Fresh issue is to meet the future

business requirements of Bajaj Housing

Finance now that's fair enough now one

should be cautious if IPO proceeds are

meant only for managing a crisis such as

debt repayment it's good when IPO

proceeds will be used for business

growth the third criteria is if the

company's issued shares in the past that

are below the IPO price now Bajaj

Finance the promoter has has acquired

111 CR shares in Bajaj Housing Finance

in the last year at the weightage

average price of

18.1 that's far below the IPO price band

of 66 to 70 in fact the IPO price is

almost four times higher than the

acquisition price that's a potential red

flag secondly the promoter itself is

selling about 43 cr shares via the offs

when it acquired 111 CR shares in the

last year that might hint at

opportunistic behavior on the part of

the promoter given that the Indian stock

market is booming the next criteria is

litigations against the company and

promoters against the company there are

litigations involving an amount of 24

crores against the promoters Bajaj

finance and Bajaj finv the amount is

staggering

4,171 crores there are 23 criminal

proceedings against the company and 47

against the promoters going on this

could be a sign of worry fortunately

contingent liabilities against the

company are quite lower Just 4 crores a

contingent liability is a possible

obligation that may or may not occur

depending on a future event so low to

nail contingent liabilities are a good

thing let's also see some of the key

risk factors mentioned by the company in

its RHP there are as many as 76 risk

factors mentioned by the company in its

RHP but most of them are kind of

disclaimers a few do stand out though

these include the company's a is

concentrated in just four states and the

union territory of New Delhi and in any

adverse development in these regions can

have adverse impact on the business the

company has admitted that it has issued

shares to its promoters NFI 23 at a

price lower than the IPO issue price the

company mentions the litigations against

it and its promoters as a matter of

concern the company's promoters promoter

group entities group companies and

directors are engaged in business

similar to the company's business and

hence it can lead to a conflict of

interest the company's loans are

concentrated on certain customers its

top 10 customers account for 6.2% of its

loans you can read the list of full 76

risk factors in the company's RHP okay

so given all this information should you

invest in baj finance IPO let's

[Music]

see rapid growth fundamental strength

and a promising industry are all

positives for baj Housing Finance but

the biggest plus is the baj parentage

the Bajaj group is among India's biggest

and most reputed business groups and has

multiple wealth creating companies the

strength of its promoters and the group

sets baj Housing Finance apart from the

rest in its industry but the IPO seems

to have an opportunity stick B too the

promoters are selling the stake at a

steep premium when they acquired shares

in the last year at a much lower price

this premium is reflected in IPO

valuations too the litigations against

the company and promoters are a cause of

concern so is the concentrated risk of

company's business then comes the

competition not just from housing

finance companies but also from other n

bfc's that offer home loans and

certainly from Banks from an investor

standpoint there is no dirth of listed

companies in the Housing Finance space

and if you want to play the housing

theme there are lot more options anyways

so it remains to be seen how worthy an

option baj housing proves to be for

investors over the long term as always

if there are POS positives there are

challenges too do let us know in the

comment section whether you would invest

in baj Housing Finance and why and with

this we have come to the end of this

video I hope you found this video useful

and if it did please share it with your

friends and family I'll be back soon

with another video till then take care

investment in Securities Market are

subject to Market risks read all the

related documents carefully before

investing