Bajaj Housing Finance Rs 135
There is growing need for housing in India as the young population leaves semi urban, Tier 1, Tier 2 cities and migrates to larger cities for jobs. This trend is going to continue for a long time as education equips the youth to seek better opportunities. Housing finance growth is tied at the hip to the housing demand and therefore shares the same optimistic outlook of double digit growth for a long time.
From FY 2015 to FY2020, housing finance growth in India had been 16%. Thereafter it tapered to below 10% due to slowdown in economy. Of late, it has started picking up again which is showing in robust real estate sales.
Mirroring this demand, LIC Housing Finance, the largest housing standalone housing finance company (HFC) in India grew its loan portfolio in the last 10 years at a CAGR of around 13%.
Recent IPO of Bajaj Housing Finance (BHF) belonging to Sanjiv Bajaj group provides an interesting opportunity to participate in this secular growth journey. Against IPO price of Rs 70, the stock listed in Sep 2024 at around Rs 150 and went up to scale a high of around Rs 190. Since then, it has corrected by 25% to more reasonable levels.
In only six years of operations, BHF has become second largest HFC of the country with AUM of over 100000 cr, lowest GNPA of 0.29x and NNPA of 0.12x as on 30 Sep 2024. From FY18 to FY24, it has clocked industry beating AUM CAGR of 72% and PAT CAGR of 136%. Last 5, 3, 1 years figures for AUM and PAT are 39%, 33%, 32% and 73%, 56%, 38% respectively.
Replicating past growth of over 30% seems difficult because this was done when there were not so many fintechs with deep pockets. Now the financial services ecosystem in India has changed. There are many well-funded tech savvy fintechs which are eager to make their mark. While BHF may not find it easy to outperform industry growth by a very wide margin, it can reasonably be expected to grow a few percentage points higher than industry growth. Sanjiv Bajaj in post IPO media interaction stated that the housing finance growth in the country is expected to be 12-15%. BHF can grow at around 18-20% due to its heft.
Financing business is quirky. It is very easy to grow loan book. The real deal is to lend prudently, recover the money lent and have minimal bad debts. In their hurry to grow loan books, many of these fintechs can run into rough weather leaving the field open to well run companies like BHF to grow at higher rates and enjoy premium valuations.
BHF is AAA rated and therefore enjoys low cost of funds of around 8% which places it advantageously compared to competition in terms of margins. Post IPO, its Debt Equity Ratio stood at 4x. The upper range of D/E as per Q2FY25 concall is 7x thereby giving it good headroom to grow without having to issue more equity.
At current price of Rs 135, it is trading at PE of 54 which is expensive but not exorbitant. If BFC is able to grow at 20% for 5 years, then with exit PE of 35, it leaves around 10% on the table which is attractive for the kind of underwriting history Bajaj group has. Long term investors can consider taking exposure to the stock and adding it on declines.