Bajaj Housing Finance IPO booked over 4x on the second day. Should you jump aboard this ship?

The Rs 6,560-crore initial public offer (IPO) of Bajaj Housing Finance, which opened for subscription yesterday, got fully subscribed within just hours. As of 3 pm today, the IPO was oversubscribed over 5.61x overall, with retail investors subscribing 3.55x.

To put investor's enthusiasm regarding this IPO in perspective, with a day to go, the company has already received Rs 26,959.10 crore, as against its ask of about Rs 6,500 crore. The initial share sale, which will conclude on September 11, has a price band between Rs 66-70 per share. While the allotment is expected to be finalised by September 12, the listing on NSE and BSE will tentaively happen on September 16th, 2024. Retailers can invest a minimum of Rs 14,980, and a maximum of Rs 1,94,740 in the IPO.

This IPO is a combination of a fresh issue of equity shares of up to Rs 3,560 crore and an offer-for-sale (OFS) of equity shares to the tune of Rs 3,000 crore by parent Bajaj Finance. Notably, the share sale is being conducted to comply with the Reserve Bank of India's (RBI) regulations, which require upper-layer non-banking finance companies to be listed on stock exchanges by September 2025. Other names in the upper-layer NBFC list include LIC Housing Finance, Indiabulls Housing Finance, L&T Finance and more.

In the recent months, Aadhar Housing Finance and India Shelter Finance are two housing finance companies that have been listed on the stock exchanges. Proceeds from the fresh issue will be used to augment the company's capital base to meet future capital requirements.

The HFC (housing finance company) has a legacy associated with it, and the name of Bajaj Finance, which is a leader in consumer durable lending behind it. However, as mentioned in the company's RHP, over 50% of the company's total AUM as of 2024 is concentrated in just 3 states-Maharashtra (32%), Karnataka (22.7%) and Telangana (14.8%).

Subscribe for the long-term

Master Capital Services advises investors to subscribe to this IPO, but only if you are willing to hold it for a medium to long-term.

"Bajaj Housing Finance is the largest non-deposit-taking HFC (in terms of AUM) in India within seven years of commencing mortgage operation. The company’s Omni-channel sourcing strategy, strong geographic presence, and distribution reach enable it to acquire a large volume of customers every year and it plans to optimize its borrowing costs by diversifying its borrowing profile. Investors looking to invest can invest in the IPO for the medium to long term".

As per InCred Equities, "at the upper band of Rs 70, the stock will be valued at ~3.2x its trailing Jun 2024 book value, which is expensive compared to peers like LIC Housing Finance or LIC HF (~1.2x), PNB Housing (~1.7x) & Can Fin Homes (~2.7x). But this is in line with our expectation, given BHFL’s robust yet diversified AUM growth (+30% CAGR), sturdy asset quality (NPAs less than 1%) and superior technology platform. This makes the company attractive over the mid- to long-term horizon. We recommend subscription to the IPO".