Bajaj Finance surges 13% in 2 weeks; Here's what is fueling the rally

As per reports, the company is planning an IPO of its housing finance arm, Bajaj Housing Finance (BHFL) at a valuation of Rs 80,000-85,000 crore.

The shares of Bajaj Finance ended 3 per cent higher at Rs 7,240 on the BSE during Thursday’s  trade amid reports that the company was planning an initial public offering (IPO) of its housing finance subsidiary, Bajaj Housing Finance Limited (BHFL) at a valuation of Rs 80,000-85,000 crore.

Shares of Bajaj Finance were trading higher for the seventh straight day. In the past two weeks, the stock has rallied 13 per cent.

BHFL offers a full range of mortgage products such as home loans, loan against property and lease rental discounting to salaried and self-employed customers. It also offers construction finance and inventory finance to credit- worthy developers.
 

On 30 September 2022, the Reserve Bank of India (RBI), as part of scale-based regulation, identified and categorised Bajaj Finance and BHFL as an upper layer non banking financial company or NBFC among its list of 16 NBFCs (including housing finance companies). This development is undertaken to comply with regulatory norms to list for upper layer non banking finance companies (NBFCs). 
 

Divestment of around 10 per cent is expected in the IPO. BHFL is serving a huge customer base with asset under management (AUM) of Rs 85,929 crore and return on assets (RoA) of 2.4 per cent in December 2023 quarter (Q3FY24).  Gross net performing assets (NPA) and net NPA as of Q3FY24 stood at 0.25 per cent and 0.10 per cent respectively. Bajaj Finance is India’s largest NBFC with primarily a retail/MSME product suite focused on mass affluent and above demographics, built on a uniquely successful cross-sell/upsell model.
 

Last week, brokerage firm BNP Paribas initiated coverage on Bajaj Finance with outperforming rating and target price of Rs 9,040 per share and marked it as a preferred financial services pick. Riding on increasingly potent omni-channel presence, the brokerage firm expects loan/earnings per share annual growth over FY23-26E of 30 per cent/26 per cent respectively while maintaining return on equity or RoE at 22-23 per cent. Asset strategy will remain key, it added.
 

“High loan growth ensures that BAF could potentially hit its internal dilution threshold leverage by FY26. Our analysis suggests that a 3 per cent/5 per cent dilution is potentially a 15 per cent/25 per cent boost to book value per share ensures that its current trading multiple of 4.4 times FY25 price to book is rather attractive in lieu of the accelerated compounding. Cyclical asset risks remain the key monitorable,” said Santanu Chakrabarti of the brokerage.
 

Meanwhile, Bajaj Finance has recently raised nearly Rs 10,000 crore through a qualified institutional placement or QIP and preferential allotment of shares, which is likely to aid robust growth till FY26F, according to analysts at InCred Equities.
 

The recent reshuffle in managerial roles provides comfort over management stability and the ability of the company to maintain its diversified growth momentum. 
 

The aggressive customer acquisition & flawless diversity into new business segments are the unique features of the company, the brokerage firm had said in Q3FY24 result update.