Bajaj Housing IPO: InCred Equities Backs Premium Valuation Citing Strong Growth and Solid Asset Quality

InCred Equities believes that the valuation of Bajaj Housing Finance (BHFL), whose IPO is set to launch on September 9, is justified due to the company’s strong growth, solid asset quality, and a superior technology-driven platform. While the company’s margin profile may be slightly vulnerable, there is significant potential to enhance operating efficiency, which could lead to outperformance in return on equity (RoE).

Focus on Prime Salaried Customers

BHFL’s focus is primarily on prime salaried customers, offering competitive interest rates that are comparable to those provided by banks. This strategy gives the company an edge over smaller players in the market and supports growth in its assets under management (AUM). However, because BHFL’s cost of funds is higher than that of banks, its margin profile is relatively weaker.

Diversified Portfolio Offers Flexibility

Despite this, InCred is optimistic that BHFL’s diversified portfolio—featuring a balanced mix of higher-yield loans such as loans against property, lease rental discounting, and developer loans—gives management room to maneuver and manage yields. Additionally, with its current cost-to-income (C/I) ratio at around 24%, there is ample room to improve operational efficiency, which could boost RoE in the long term.

Strong Digital Adoption Enhances Customer Service

InCred also pointed out that BHFL is valued at a premium compared to most other housing finance companies (HFCs) due to its strong customer service. The company’s use of advanced digital solutions in loan processing enables the fastest turnaround time in the industry, and its high level of digitization has made customer service simpler and more efficient. This tech-enabled approach has attracted low-risk salaried customers to BHFL’s home loan products.

Smaller Banks and HFCs Not Major Competitors

According to the report, smaller banks and HFCs are not significant competitors for BHFL because their higher interest rates often result in BHFL acquiring balance transfers from these smaller HFCs. The domestic brokerage firm concluded that BHFL is a stock to own for the long term, emphasizing that “beauty lies in the eyes of the beholder.” It highlighted that Bajaj Finance, BHFL’s parent company, has been a leader in consumer durable financing for many years, despite fierce competition from banks and credit card companies.

InCred Recommends Subscribing to BHFL’s IPO

InCred recommends subscribing to the IPO, stating that BHFL’s management has the vision and capability to drive growth over the years. This makes BHFL an attractive investment, especially over the medium- to long-term horizon.

Bajaj Finance Shares Remain Steady

Meanwhile, on Wednesday, Bajaj Finance’s share price remained steady, closing around ₹7,300 on the BSE.