Can Bajaj Housing Finance hit IPO listing price? Subpar returns ahead, warns MOFSL

MOFSL has initiated coverage on Bajaj Housing Finance Ltd (BHFL) with a ‘Neutral’ rating, noting that at 3.6 times price-to-book and nearly 29 times estimated FY27 earnings, the stock continues to trade at a 60 per cent premium to its IPO issue price. Higher competition in the prime home loan segment, increasing exposure to non-housing loans, NIM pressure from sustained high competitive intensity in the sector, and any slowdown in the real estate or economy are key risks, it said.

Bajaj Housing got listed on September 16 last year at Rs 150 apiece each on BSE and NSE over its IPO price of Rs 70. It went on to hit 188.45 on September 18, 2024, only to tumble later. MOFSL set a target of Rs 120 on the BHFL stock. Even if achieved, the stock would still be 57 per cent off from the BHFL's record September 2024 levels.   

MOFSL said Bajaj Housing Finance is the fastest-growing and the second-largest HFC in India, with a five-year AUM CAGR of 29 per cent over FY20-FY25. It had an AUM of Rs 1.2 lakh crore as of June 30. 

Calling it the most diversified HFC in the country offering a comprehensive suite of mortgage products that cater to a broad spectrum of customers, MOFSL said BHFL has also introduced an affordable housing segment, positioning itself to serve the entire housing finance ecosystem.

That said, MOFSL expects BHFL’s AUM growth to moderate over the medium term due to a larger balance sheet size and stronger competition from banks. This is even as the near term levers such as increasing the share of construction finance in the AUM mix and gradually scaling up the affordable business could help mitigate NIM contraction in a declining interest rate cycle. 

"Eventually, though, BHFL is likely to settle at a lower blended spread/NIM profile. RoE is expected to remain moderate in the near-term, at 12-14 per cent, due to intense competition and relatively low yields in the prime home loan segment," MOFSL said.

While Bajaj Group’s strong execution capabilities add credibility, the current premium valuations, when weighed against the modest return on equity (RoE) profile, may result in subpar stock returns going forward.