Bajaj Housing Finance IPO: Yay or Nay?

It's raining IPOs, quite literally. Did you know that over 34 mainboard IPOs have already been launched in 2024, with more on the way?

Dive into the world of bricks, mortar, and money with Bajaj Housing Finance Limited's (BHFL) highly anticipated IPO. With ₹7,000 crore on the line, this isn't just any IPO; the Indian real estate market is on the rise, and the Bajaj Housing Finance  IPO might be just the way to catch this wave.

Since its foundation, Bajaj Housing Finance has been able to raise growth capital with ease. Why? Because Bajaj Finance is its parent company. Till date, Bajaj Finance has infused ₹9,500 crore in Bajaj Housing Finance with the latest infusion in April 2024 worth ₹2,000 crore.

This makes one wonder, whether the upcoming IPO will be able to perform satisfactorily or not. So, grab your chai, coffee or thanda and let's break down what this IPO wave is all about.

Bajaj Housing Finance IPO Details

Bajaj Housing Finance is a non-deposit housing finance company and has been in the housing & renovation finance business since 2018. It's a little different from your typical bank, specialising in mortgage lending and helping people buy their dream homes or offices.

Bajaj Housing Finance is a wholly-owned subsidiary of Bajaj Finance. It offers a wide range of mortgage products, including loans against property, home loans and developer financing.

Bajaj Housing Finance IPO has filed its DHRP (Draft Red Herring Prospectus) with SEBI to raise up to ₹7,000 crores. That’s ₹70,00,00,00,000.
That's a lot of zeros! 😲

The public issue includes a fresh issue of shares worth ₹4,000 crore. According to the prospectus, parent Bajaj Finance Ltd. will sell shares worth another ₹3,000 crore via an Offer For Sale (OFS).

Other IPO Details

The book-running lead managers are:

• Kotak Mahindra Capital Company Ltd.
• BofA Securities India Ltd.
• Axis Capital Ltd.
• Goldman Sachs (India) Securities Pvt. Ltd.
• SBI Capital Markets Ltd.
• JM Financial Ltd.
• IIFL Securities Ltd.

KFin Technologies will track who gets how many shares as the registrar of the issue.

Let's talk numbers.

While we still don't know the IPO date, we do know some juicy details about it.

The public offer includes a reservation of equity shares for subscription by eligible workers. It also reserves shares with a face value of ₹10 each for subscription by eligible promoters' owners, including persons and HUFs who are the promoters' public equity owners.

 Where Will the Funds Raised be Used?

A question worth ₹ 7,000 crore. Bajaj Housing Finance has big plans for the funds raised through its IPO.

a. Enhance Capital Base: A substantial chunk of the fresh issue proceeds is earmarked to beef up Bajaj Housing Finance's capital base. Translation: BHFL is gearing up to lend more and expand its horizons in the housing finance arena. This is crucial for fuelling future business growth and expanding their footprint in the competitive housing finance sector.
 
b. Cover IPO Expenses: Launching an IPO isn't cheap. That's why a portion of the funds will go towards covering the expenses related to the IPO process itself. These costs, from legal fees to marketing expenses, are all part of bringing Bajaj Housing Finance to the public market.
 
c. Drive Innovation and Expansion: Beyond immediate needs, the IPO proceeds could also be deployed strategically. There are many potential avenues to explore, such as enhancing technological infrastructure, exploring new market opportunities, or bolstering existing services.

Now that you know how Bajaj Housing Finance plans to use the raised capital, let's consider what the IPO might mean for you.

Should the Bajaj Housing Finance IPO be on your Radar?

That's the main question, isn't it? Should you consider this IPO? Will it be a good investment or not?

I have a list of factors that might help you make your decision:

a. Big Money: The Bajaj Housing Finance IPO is worth ₹7,000 crore (approx. $1 billion), making it an epic financial event in the Indian market.

b. Compliance: As a large NBFC (Non-Banking Financial Company), Bajaj Housing Finance needs to be listed on the stock exchange. This IPO is Bajaj Housing Finance's way of showing RBI that it's a big deal.

c. Capital Boost: With the fresh issue of shares, Bajaj Housing Finance is beefing up its capital base to support its future growth plans.

d. Housing Finance Hotspot: Bajaj Housing Finance is a major player in the Indian housing finance market, serving over 83.64 crore customers. The credibility and brand name of Bajaj and its reputation make this IPO a good option for investors.

Now that you have the facts, this IPO could be a good investment opportunity. After all, Housing and investment have always been a good combination. However, remember that all investments are subject to market risks.
SO…

How was Bajaj Housing Finance Formed?

Bajaj Housing Finance was established in 2015 after Bajaj Finserv expanded into the housing finance business in 2014 and spun off this division into a separate entity. This meant that the company could now focus completely on the housing finance market.

Bajaj Housing Finance had a running start and quickly became a major player in the Indian housing finance landscape. How? With a power combo of customer-centric approach, innovative products, and strategic partnerships.
As any child does, Bajaj Housing Finance became subject to scrutiny when it grew in size and significance. Being a large NBFC, it had to comply with RBI regulations hence the company is now gearing up for its highly anticipated IPO.

Real Estate Sector Overview

Right now, the real estate market in India is just as hot as the summer - maybe even hotter. In 2023, luxury home sales shot up 75%. With this increase, the luxury home sales nearly doubled their share in total housing sales.

The market is expected to grow by 9.20% annually from 2023 to 2028. Factors like urbanisation, rental market expansion, and property price appreciation are expected to further drive growth in the real estate market in 2024.

The real estate market is also experiencing a rise in private investment driven by increasing transparency and returns. The government is opening the sector to foreign investments by allowing up to 100% FDI for townships and settlement development projects.

That's not all; Finance Minister Ms Nirmala Sitharaman announced an addition of 2 crore more houses to the flagship scheme PMAY-U in the 2024-25 Interim Budget. This step ultimately set the Indian real estate market for blockbuster growth.

As presented in the infographic above, the Indian real estate market size is predicted to touch $650 billion (around ₹5.39 lakh crore) by 2025. This will further touch $1,000 billion by 2030. The sector will contribute 13% to the country's GDP by 2050.

This increase is attributed not only to residential real estate but also to retail, hospitality, and commercial real estate. These segments are also in for the ride and have been growing significantly.

India is a developing country and has been growing exponentially, and these real estate opportunities provide much-needed infrastructure for the country's growing needs.

Peaking Home Sales & Relation to Housing Finance

The growth trajectory of India's residential property market is also impressive. In FY23, the value of home sales skyrocketed to ₹3.47 lakh crore ($42 billion), marking an exponential 48% Y-o-Y rise. Additionally, the volume of sales experienced a robust 36% rise to 3,79,095 units sold, showcasing phenomenal growth.

Here is the interesting bit: Despite factors like high property prices and mortgage rates posing a challenge in 2023, the demand for residential properties in India surged. The mid-income, premium, and luxury segments in the top 8 Indian cities led to this charge.

The Indian real estate developers operating in the country's major urban centres have achieved a huge milestone in 2023 by completing around 5,58,000 homes.

Between 2024 and 2028, around 41 million sq. feet of retail developments are set to be operational. These projects are going to be spread across the top seven cities and will encompass projects in multiple stages including everything from construction to planning. This is proof that the Indian physical retail landscape is looking for a serious boost in the upcoming future.

Too Much Excitement!

Bajaj Housing Finance Financials and Peer Comparison

Bajaj Housing Finance was on a list published by the RBI. It comprised upper-layer NBFCs or enterprises with assets under the control of ₹50,000 crores.

According to a CNBC TV18 news report, Bajaj Housing Finance is a 100% subsidiary of Bajaj Finance, and Bajaj Finserv holds a 51.34% interest in it. The company has a strong track record of profitability and boasts the highest credit ratings in India for borrowing and the lowest delinquency rates among large housing finance companies.

Now, let's peek into Bajaj Housing Finance's gullak. They posted a net profit of ₹1,731 crore for FY 2023-24, a healthy 38% jump from ₹1,258 crore the year before.

 The company's percentage of home loans to total Assets Under Management (AUM) as of 31 March 2024 was 57.8%, down from 61.7 % last year. Despite challenges like high mortgage rates, they're managing their assets like pros, with home loans making up a significant chunk of their portfolio.

It's only fair that we also examine Bajaj Housing Finance's competitors. Some key players in the Indian Financial services market are LIC Housing Finance, Reliance Capital, Muthoot Finance, and Manappuram Finance.

The Bottom Line

So, there you have it— Bajaj Housing Finance is coming up with an IPO.

Before you jump head-first into the IPO wave, remember that investment decisions are about more than numbers. India is a developing country, and its appetite for roti, kapda and makaan is enormous.

Investing in this IPO might seem tempting, but hey, as with any investment, do your homework. Read up, consult experts, and make sure it fits your spice tolerance.

*Disclaimer: The stocks and companies discussed above aren't a recommendation from Finology Insider and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.