What is Bajaj Housing Finance Limited?
As the name implies, Bajaj Housing Finance Limited is a non-deposit Housing Finance Company (HFC). This means that instead of raising capital from deposits, they use bonds, debentures, and other financial instruments. These monies are then used to provide financing for the purchase or renovation of residential and commercial properties.
BHFL provides four major services:
1. Home Loans: These are easy loans for purchasing a property.
2. Loan Against Property (LAP): Homeowners wishing to renovate or upgrade their homes might use their property as collateral to receive a loan.
3. Lease Rental Discounting (LRD): A loan based on future lease rentals.
4. Developer Financing: Loans made to real estate developers for construction projects.
Home loans make up 57.8% of their total assets under management (AUM), totaling ₹93,000 crore by 2024. The second largest component is lease rental discounting, which accounts for 19%, followed by loans against property and developer finance.
Key Points to Know
The Reserve Bank of India has classed BHFL as an upper-layer NBFC (Non-Banking Financial Company), indicating that it is “too big to fail.” Such companies are subject to severe rules to avert financial disasters.
Here are some important statistics:
It is the second-largest Housing Finance Company (HFC) in India, with an AUM of ₹93,000 crore.
– It is also the second-most profitable HFC in the country.
– BHFL has the industry’s lowest gross non-performing assets (GNPA) and net non-performing assets (NNPA) ratios.
– The company has been given the highest possible credit rating in India for both long-term and short-term borrowing programs.
Industry Analysis
India’s housing finance sector is expected to grow significantly. According to BHFL’s Red Herring Prospectus (RHP), the housing finance business expanded at a 13.1% CAGR (Compound Annual Growth Rate) from 2019 to 2023 and is predicted to increase at a 13-15% CAGR between 2024 and 2027.
Furthermore, the penetration of housing finance in India remains lower than in many other nations, indicating significant possibility for expansion. With government efforts such as the Pradhan Mantri Awas Yojana, which provides credit-linked subsidies for both urban and rural homes, demand in this sector is expected to rise further.
Risks
No business is risk-free, and BHFL is no exception. The company operates in a highly regulated environment, overseen by the RBI, the National Housing Bank (NHB), and other government entities. Any policy or incentive structure changes may have an impact on the company’s operations.
Another issue is the overlap with its parent company, Bajaj Finance Limited, which is also involved in the loan against property (LAP) sector. This raises concerns about potential conflicts of interest, even if LAP accounts for only 10.5% of BHFL’s revenue.
Financial Overview
Let’s take a quick look at BHFL’s financial performance:
1. Net Interest Income increased from ₹13,000 to ₹25,000 million between FY22 and FY24.
2. Revenue from operations has also grown rapidly, with a CAGR of 42.2%.
3. Net profit margins have steadily increased.
However, both the Net Interest Margin (NIM) and the spreads have fluctuated. NIM increased from 4% to 4.5% in 2023, then fell back to 4.1% in 2024. Similarly, spreads widened from 2.8% to 3% before falling to 2.6%.
Peer Comparison
BHFL is the second-largest housing finance company, behind HDFC. In terms of return on net worth, BHFL’s figure is 15.2%, compared to the industry average of 15.9%.
What distinguishes BHFL is that it exceeds regulatory criteria in crucial areas:
– Capital Adequacy Ratio (CAR): The regulatory requirement is 15%, however BHFL maintains 21.28%.
– Liquidity Coverage Ratio (LCR): The regulatory requirement is 85%, but BHFL has 192.31%.
Use of IPO Proceeds.
BHFL intends to use the IPO proceeds to expand its capital base and make onward loans. This will enable the organization to grow its activities and strengthen its financial position. In addition, the listing will provide value unlocking opportunities for its parent firms, Bajaj Finance and Bajaj Finserv, as well as help develop BHFL’s brand name.
IPO Details
– Total Issue Size: ₹6,560 crore
– Fresh Issue: ₹3,560 crore
– Offer for Sale (OFS): ₹3,000 crore
People frequently ask about applying through the shareholder quota. If you possessed Bajaj Finance or Bajaj Finserv shares before August 30th, you were eligible to apply under this quota. Unfortunately, if you purchase after this date, you will not be eligible. You can still apply under the retail individual investor category.
Conclusion
In conclusion, Bajaj Housing Finance Limited’s IPO provides an excellent opportunity to participate in a booming sector with strong financials and market presence. There are dangers with any investment, but the company is well-positioned to benefit from India’s burgeoning Housing Finance sector.
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