Bajaj Housing Finance’s Rs 7,000 cr IPO to shake up industry valuation

Experts say co looking for valuation of a Rs 83,550 cr, which would make it largest in the industry
Image used for representational purposes only.
Image used for representational purposes only.

MUMBAI: The Bajaj Group, which is entering the primary capital markets with a bumper offer of Rs 7,000 crore after nearly two decades, is set to shake up the industry that has been going through dull moments since the exit of the industry leader HDFC last July from the scene following its reverse merger with its sibling commercial bank, according to analysts.

Bajaja Housing is entering a universe, which is dominated by Indiabulls Housing Finance, LIC Housing Finance, Piramal Capital and Housing Finance, PNB Housing Finance in the pecking order of average AUMs for FY22 and FY23 with over Rs 50,000 crore. Bajaj Housing is already in the upper layer of this.

As per the investment bankers who are not working on the issue, Bajaj Housing Finance is likely looking at a valuation of a $10 billion, which would make it the largest in the cluttered industry. According to an analyst, the Pune-based company whose sister concerns Bajaj Auto and Bajaj Capital lead the industry in terms of price-to-earnings ratios and are the most profitable in these terms. Bajaj Auto, in fact, is the most profitable auto company in the world in terms PE ratios.

The same analysts pegs Bajaj Housing to ask for a price band of whopping Rs 830-844 per share or a market capitalisation of about Rs 50,000 crore on listing. Parent Bajaj Finance has a market capitalisation of Rs 5 trillion (Rs 5 lakh cr), and Bajaj Housing’s valuation represents about 10% of that. Even if Bajaj Housing was to exceed expectations by 50% on listing, it will translate into just about a 5% upside to Bajaj Finance’s valuation.

Therefore, some brokerages such as Motilal Oswal are not enthused about Bajaj Finance’s prospects and see limited upside catalysts for the stock. “Management’s guidance for FY25 is below its long-term guidance on multiple metrics such as AUM growth, credit costs, return on assets and return on equity,” said a Motilal analyst in their Q4FY24 review report.

Last week, Bajaj Housing filed draft red herring prospects with Sebi for a Rs 7,000 crore share sale. This will be the first public issue from the Pune-based group founded in 1926 after Bajaj Fiserv, which is the parent of the issuer and its holding company of the group’s financial services vertical, went public in May 2008 and Bajaj Finance, another promoter of the issuer that hit market way in 1994. Bajaj Auto has been listed for decades and is the most profitable auto maker in the world in terms of price to earnings. The issue among the largest from the housing finance space and the largest so far this fiscal, comprises of Rs 4000 core of fresh issue and Rs 3,000 crore of offer for sale by promoters --Bajaj Finance and Bajaj Finserv, both listed entities.

Blackstone-backed Aadhar Housing (Rs 3,000 cr issue last month) and the Westbridge-backed India Shelter Finance (Rs 1,200 cr in Dec 2023) were the two IPOs from the home finance side this year. As per the DRHP, only Bajaj Finance is participating in the offer for sale of up to Rs 3,000 crore though Bajaj Finserv is also a promoter. The DRHP filing came two days after the board approved the IPO early June.

It proposes to use the proceeds to augment the capital base to meet future business requirements and for onward lending. Bajaj Housing Finance is identified as an upper layer NBFC by the RBI since September 2022 under the scale-based regulations which mandate such firms to go public within three years, that’s by this September.

Apart from Bajaj Housing, the upper layer NBFCs include Tata Sons, HDB Financial Services, Tata Capital, and Aditya Birla Finance. The company began operations in September 2015 as a non-deposit taking home finance player regulated by the National Housing Bank and offers home loans, loans against property, lease rental discounting, and developer financing but the focus is individual retail housing loans. It had 215 branches as of March 2024, spread across 174 locations in 20 states and three union territories.

For the nine months to December 2023, Bajaj Housing had a loan book of Rs 85,929 crore, which was 31% more than the year-ago period. Net disbursements rose by 31% to Rs 25,308 crore, while net profit jumped 41% to Rs 1,350 crore.

Kotak Mahindra Capital Company, BofA Securities India, Axis Capital, Goldman Sachs India Securities, SBI Capital Markets, JM Financial and IIFL Securities are the book running lead managers to the issue. Amid flurry of IPOs form the finance segment is the Rs 4,000 crore coming in from Hero Fincorp, which the non-bank arm of the world’s largest two-wheeler maker Hero Motocorp. The company in an exchange filing said the proposed issue approved by its board will comprise a fresh issue of shares valued at up to Rs 4,000 crore, and OFS existing and eligible shareholders. Normally OFS amount is fixed after the price band of the issue is fixed. The board of directors in a meeting held on May 29 approved an IPO of equity shares of face value of Rs 10 each comprising a fresh issue of up to Rs 4,000 crore and an OFS,” the exchange filing said.

Hero Fincorp is a non-banking financial company offering personal, business, and home loans, as well as insurance.

The financial details of the company is not yet available, nor the statement spoke about when it will seek the Sebi nod for the issue and file the draft red herring prospects.

Source: Draft Red Herring Prospectus

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