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Introduction

Founded in 2008, Bajaj Housing Finance Ltd (BHFL) has rapidly ascended the ranks to become a prominent player in India's housing finance sector. Registered with the National Housing Bank (NHB) since 2015, BHFL operates as a subsidiary of Bajaj Finance Limited, focusing on providing mortgage lending services. Within just seven years of starting its mortgage operations, BHFL has emerged as the second-largest Housing Finance Company (HFC) and the eighth-largest Non-Banking Financial Company (NBFC) in India by Assets Under Management (AUM).

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Business Overview

Market Leadership

• Second-largest HFC in India.
• Second-most profitable HFC with impressive financial metrics.
• Recorded the second-highest loan disbursement among HFCs in FY2024 and Q1FY2025.
• Achieved the second-highest AUM per branch and employee among large HFCs.

Business Segments

BHFL's business is diversified across four main segments:

1. Home Loans (57.5% of AUM): Long-term loans for purchasing residential properties, primarily catering to salaried individuals (81.7% of customers).

2. Loans Against Property (LAP) (10.0%): Loans secured against residential or commercial properties, allowing borrowers to access funds without selling their assets.

3. Lease Rental Discounting (19.5%): Financing based on future rental income from commercial properties.

4. Developer Financing (12%): Funding for developers undertaking large-scale residential or commercial projects, offering higher returns due to larger loan amounts and interest rates.

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Financial Performance

Key Financial Indicators (as of June 2024)

• Total AUM: ₹97,071 Crores
• Net Interest Margin: 3.9%
• Average Finance Cost: 7.9%
• Gross NPA Ratio: 0.28% (lowest among large HFCs)
• Net NPA Ratio: 0.11% (lowest among large HFCs)
• Return on Equity (ROE): 15.2%
• Return on Capital Employed (ROCE): 9.42%

Profit & Loss Snapshot (in ₹ Crores)

Financial Year	Revenue	Net Profit	EPS (₹)
Mar 2020	2,646	421	0.86
Mar 2021	3,155	453	0.93
Mar 2022	3,767	710	1.45
Mar 2023	5,665	1,258	1.87
Mar 2024	7,617	1,731	2.58

Quarterly Performance Highlights

• Revenue Growth: The company witnessed consistent revenue growth, reaching ₹2,209 Crores in June 2024, a 25.26% increase compared to the previous year.
• Net Profit Margin: Maintained strong profitability with a net profit of ₹483 Crores in June 2024, marking a 4.51% growth.
• Asset Quality: BHFL boasts an excellent asset quality with GNPA at 0.28% and NNPA at 0.11%, indicating effective risk management practices.

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Competitive Positioning

Peer Comparison

Company	Market Cap (₹ Crores)	P/E Ratio	ROCE (%)	Gross NPA (%)
Bajaj Housing Finance	1,13,770	65.7	9.42	0.28
H U D C O	41,746	18.73	9.23	-
LIC Housing Finance	33,435	7.04	8.79	-
PNB Housing Finance	23,766	14.73	9.27	-
Aadhar Housing Finance	18,493	24.66	11.36	-

BHFL stands out with the lowest GNPA and NNPA ratios among its peers, reflecting superior asset quality.

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Strengths

1. Strong Parentage: Backed by the reputable Bajaj Group, providing financial stability and strategic support.

2. Diversified Loan Portfolio: Offers a mix of retail and wholesale lending products, balancing risk and return.

3. Robust Asset Quality: Maintains one of the lowest NPA ratios in the industry.

4. Efficient Operations: High AUM per branch and employee, indicating operational efficiency.

5. Expanding Distribution Network: Presence in 174 locations across 20 states and 3 union territories, enhancing market penetration.

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Challenges

1. High Valuation: With a P/E ratio of 65.7, the stock is trading at a premium compared to peers.

2. Concentration Risk: Significant exposure in states like Maharashtra (32.0%) and Karnataka (22.7%), which could impact performance if regional markets face downturns.

3. Interest Rate Risk: As with all lending institutions, fluctuations in interest rates could affect margins.

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Future Outlook

• Growth Opportunities: India's housing finance sector is poised for growth, driven by urbanization and government initiatives like "Housing for All."
• Technology Adoption: BHFL's focus on digital transformation could enhance customer experience and reduce operational costs.
• IPO Proceeds Utilization: The fresh issue of ₹3,560 Crores from the IPO will augment the capital base for onward lending, supporting future growth.

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Investment Recommendation

Based on the comprehensive analysis:

• Recommendation: Hold

Rationale

• Positive Factors:

  • Strong Financials: Consistent revenue and profit growth with superior asset quality.
  • Operational Efficiency: High net interest margins and low NPAs.
  • Market Position: Leading position in the housing finance sector with growth potential.

• Cautionary Notes:

  • High Valuation: The current P/E ratio suggests the stock is expensive relative to earnings.
  • Market Volatility: Potential macroeconomic factors could impact the housing finance sector.

Investor Advice: Existing investors may continue to hold the stock to capitalize on the company's growth trajectory. New investors should consider entering on price corrections to align with long-term investment goals.

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Conclusion

Bajaj Housing Finance Ltd has demonstrated robust growth and operational excellence in a competitive market. While the stock is currently trading at a premium, the company's strong fundamentals and growth prospects make it a compelling candidate for long-term investment portfolios. Investors are advised to monitor the stock for optimal entry points and stay informed about sectoral developments.

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Disclaimer: This analysis is for informational purposes only and should not be construed as investment advice. Investors should conduct their own research or consult a financial advisor before making investment decisions.