PhillipCapital anticipates that Bajaj Finance subsidiary Bajaj Housing Finance (BHFL) will debut on the exchanges in September 2025 with an expected listing price of Rs 550-570 per share.
"BHFL must list within three years, according to RBI regulations. We expect it to list in September 2025, following guidelines from September 2022", PhillipCapital said in its latest note.
Despite current tax considerations not requiring a holding company discount, PhilipCapital applies a conservative 15 percent discount for valuation across three scenarios: base (60 percent), bear (10 percent), and bull (30 percent). Valuation assumes a P/E multiple of 40x for the base scenario, slightly lower than BAF's +1st. Earnings multiples are used for the standalone entity, reflecting its fast-churn, high-velocity, consumption-driven credit business, while price-to-book multiples are applied for the housing-finance entity due to its traditional lending nature, the report said.
The brokerage is positive on BHFL due to its emphasis on salaried home loans, stable expense ratio, and minimal credit costs, resulting in robust return ratios.
Last week, Moneycontrol reported that BHFL has signed up five investment banks - Kotak Mahindra Capital, Axis Capital, BofA Securities, JM Financial and SBI Capital - as advisors as the home financier looks to launch a big-bang initial public offer within the next 12-18 months. The firm is planning to raise $900 million to $1 billion from the proposed IPO and it will have a valuation of around $9-10 billion.
BHFL targets the Rs 5-million home-loan segment, covering 65 percent of home-loan originating in India, with customers earning an average salary of Rs 1.4 million. To remain competitive, BHFL strategically offers top-up housing loans. About 40 percent of existing BAF customers opt for BHFL's home loans, mainly going to salaried individuals, boosting its expense ratio and risk-adjusted spreads for higher returns. In LAP, 70 percent of its portfolio comprises self-occupied residential properties, sourced from existing customers at 45 percent LTV, emphasising cost-efficiency and return ratios.
According to the PhilipCapital note, while BHFL's AUM per branch approaches LICHF's level, its AUM per employee lags Can Fin Homes by 20 percent. Despite better borrowing costs, BHFL's risk-adjusted spreads are lower, impacting its RoE. There's room for improvement in expense ratios, suggesting a 25 percent premium over Can Fin Homes' P/B ratio. Increased focus on LRD should yield a high-yield portfolio with operational leverage. The CF book is anticipated to remain at 8-10 percent of the total book.
"In three years, BHFL is likely to have a balance sheet of over Rs 1 trillion. We expect its credit costs 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 percent+/14 percent+," the PhillipCapital report said.
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