Bajaj Housing shares hit 10% upper circuit, jumps 160% post-listing. Philip Capital sees more upside

Stock market today: After a dream debut on Dalal Street during Monday deals, Bajaj Housing Finance shares remained under the bulls' radar on Tuesday. Bajaj Housing Finance share price today opened with an upside gap at ₹175.50 apiece on the NSE and touched an intraday high of ₹181.50 within a few hours of the Opening Bell. While climbing to this intraday high, the newly listed Bajaj Group shares locked in the upper circuit for a second straight session post-listing. This intraday high is around 160 per cent higher than the Bajaja Housing Finance IPO price band's upper price band. However, Phillip Capital sees more upside in Bajaj Housing Finance shares.

Following Bajaj Housing Finance Ltd's outstanding multi-bagger debut on September 16, brokerage house Phillip Capital sees further upside potential for the stock over the next year, forecasting an additional 27 per cent rise. The stock hit its 10 per cent upper circuit in intra-day deals today, September 17, to its new high of ₹181.48. It has now rallied over 159 per cent from its IPO price of ₹70.

Initiating coverage with a "Buy" recommendation, the brokerage highlighted the company’s strategic positioning and unique focus in the housing finance market. Furthermore, in its bull case scenario, the brokerage foresees over 35 per cent upside in the stock.

Phillip Capital’s evaluation involved three scenarios, with a conservative 15 per cent hold-co discount despite no tax obligation for such a discount. The brokerage attributed 50 per cent weight to the base case, 40 per cent to a bear case, and 10 per cent to a bull case, assuming a P/E multiple of 30x, around 20 per cent below the +1 standard deviation of Bajaj Finance. For BHFL’s standalone credit business, an earnings multiple was used, while a price-to-book multiple was applied to its housing finance operations, reflecting its traditional lending model.

The brokerage praised the company's focus on salaried home loans, stable expense ratios, and manageable credit costs, all contributing to impressive return ratios.

About IPO & Listing

Bajaj Housing Finance’s stock market debut was nothing short of stellar, doubling investors' capital. The shares were listed at ₹150 per share on the BSE and NSE, marking a premium of 114.29 per cent over the issue price of ₹70 per share.

The IPO, held from September 9 to 11, was oversubscribed by 63.61 times, with bids for more than 4,628 crore equity shares compared to the 72.75 crore shares offered. The applications were valued at nearly ₹3.24 lakh crore. The company raised ₹6,560 crore through a mix of fresh issue and offer-for-sale (OFS) components, with the fresh issue accounting for ₹3,560 crore and the OFS contributing ₹3,000 crore.

Among the top 4 players

Phillip Capital projects that BHFL will be among India’s top four mortgage players in the medium term. Despite only six years of operations, BHFL has already established itself among the top seven mortgage originators and the top three housing finance companies (HFCs) in the country. The company aims to maintain gross non-performing assets (NPA) between 0.6 and 0.8 per cent, focusing primarily on salaried housing loans.

According to Phillip Capital, BHFL leverages Bajaj Finance’s extensive customer base 88 million for data insights, allowing it to create well-targeted offerings focusing on cross-selling. To support this growth, Bajaj Finance infused ₹2,500 crore in capital in FY23 and an additional ₹2,000 crore via a rights issue, bringing the total capital infusion to ₹9,500 crore. Backed by strong parentage and a low-risk business model, BHFL has received an AAA rating from CRISIL and India Ratings.

Investment Rationale

BHFL’s Competitive Position in the Home Loan Market: The brokerage noted that BHFL primarily caters to home loan customers with an average annual income of ₹14 lakh, giving it the advantage of targeting individuals with pricing power and multiple options in key markets. Additionally, BHFL strategically offers top-up home loans, enhancing yields in an intensely competitive sector. This approach was seen as a smart move to differentiate its peers.

Sourcing and Risk Management: According to the brokerage, approximately 40 per cent of BHFL’s home loans were sourced from existing BAF customers, and nearly 90 per cent of its home loan borrowers were salaried individuals. This customer profile allowed BHFL to operate with a lower expense ratio in the medium term and improve risk-adjusted spreads, contributing to superior return ratios compared to its peers. The focus on salaried customers helped reduce operational costs while improving risk metrics.

Loan Against Property (LAP) and Cost Efficiency: Roughly 70 per cent of BHFL’s Loan Against Property (LAP) portfolio comprised loans for self-occupied residential properties, with around 45 per cent LTV (loan-to-value) originating from existing customers. This focus on self-occupied properties strongly emphasised cost management and enhanced return ratios. As BHFL expanded its operations, its AUM per branch neared that of LIC Housing Finance (LICHF), while its AUM per employee was comparable to Can Fin Homes. However, despite better borrowing costs than Can Fin Homes, BHFL’s risk-adjusted spreads remained lower, reflected in its Return on Equity (RoE), noted the brokerage.

Growth Outlook and Focus on High-Yield Segments: Phillip Capital highlighted BHFL’s strategic focus on the ‘desirable’ ₹50 lakh ticket size, which accounts for approximately 65 per cent of home loan originations in India. This focus, combined with its increasing interest in Lease Rental Discounting (LRD)—a high-yield segment offering operational leverage—positioned BHFL favourably for long-term growth. Its construction finance (CF) portfolio, expected to remain between 8 and 10 per cent of the total book, was considered range-bound.

The brokerage expects BHFL to have a balance sheet exceeding ₹2 lakh crore in the next three years. In the short term, credit costs are anticipated to remain benign. At the same time, the company's commitment to building a low-risk balance sheet is expected to result in a robust Return on Assets (RoA) of over 2% and a Return on Equity (RoE) above 12 per cent. As BHFL continues to scale, its expense ratios will likely improve, further enhancing return ratios.

"With a guidance of GNPA of 0.6-0.8 per cent, we expect credit cost to remain benign in the near term; this, along with its focus on building a low-risk balance sheet, will lead to RoA/RoE of 2 per cent/12 per cent in FY25-27," projected the brokerage.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.