Pros and Cons of Investing in the Stock of Bajaj Housing Finance Right Now

The stock market has begun the week with some big news.

Today, the stock of Bajaj Housing Finance listed at Rs 150 a huge premium of 114% to the issue price. It has closed even higher at Rs 165. The IPO of Bajaj Housing Finance, the largest of 2024 so far, was oversubscribed nearly 67 times.

The company's debut on Dalal Street has triggered a surge of excitement among investors. There's nothing more exciting for investors in a bull market that an IPO doubling their investment on listing day. In the stock market, this is the ultimate dopamine rush.

This is why many investors have IPO watch as a part of their investing strategy and why the grey market premium of every IPO is closely tracked.

Those lucky enough to get an allotment of shares would be regretting not getting more. Those who missed the bus would be disappointed. News like this often triggers FOMO (fear of missing out) in the minds of investors and traders alike.

The big question on everyone's mind is, "Should I buy the stock now?"

In this editorial, we will examine the pros and cons of the stock of Bajaj Housing Finance.

Pros

#1 The Brand Speaks for Itself

As a part of the Bajaj group, the company is in good hands.

Since its modest origins in 1926, the group has grown into a successful conglomerate. It has businesses in seven industries like steel, home appliances, consumer durables, financing, autos, and more.

The company is a part of the Rahul Bajaj group within the broader Bajaj family of companies. This group is focused on finance.

Before the IPO, Bajaj Finance owned 100% of Bajaj Housing Finance. Bajaj Finserv holds a 51.3% stake in Bajaj Finance. This, both companies are considered promoters of the Bajaj Housing Finance.

The Bajaj group, operating in various sectors, is at the forefront of India's economic growth. The group is focused on innovation and new product launches. This will hold them in good stead.

The Bajaj group companies have a history of consistent growth and profitability. This financial stability may provide investors with confidence in their investment's long-term viability. The group's recent performance has been particularly good.

#2 Strong Fundamentals

There isn't much you can say negatively about the fundamentals of the company. It's a leading housing finance company (HFC) in India across numerous key metrics.

Within just seven years of starting mortgage operations, it became the largest non-deposit-taking HFC in India, in terms of AUM. As on the end of FY24, it was the second-largest HFC and the eighth-largest NBFC in the country, with an AUM of Rs 913.7 billion (bn).

It's also among the fastest growing and most diversified HFCs in the country. The company offers a comprehensive suite of mortgage lending products. It recorded the second-highest loan disbursement by HFCs in India, Rs 446.6 bn, in FY24.

The company expanding its operations to reach more customers across India, especially in tier II and tier III cities. It's also investing in technology, specifically AI and in digital channels, to improve customer experience, push online loan applications, streamline operations, and reduce costs.

While growing fast and being very profitable, the company has not compromised on quality of its loan book. It boasts the lowest gross and net non-performing assets among large HFCs in India with a GNPA ratio of 0.3% and NNPA ratio of 0.1%.

This is largely due to the company maintaining, the highest proportion of salaried customers in its home loan portfolio with one of the highest average ticket sizes among large HFCs.

So, it's not surprising that the firm has earned the highest possible credit ratings in India for both its long-term and short-term borrowing.

#3 Growth in the Housing Finance Sector

The Indian home mortgage finance market is poised for remarkable growth, projected to be at a robust 13% compound annual growth rate (CAGR) from FY23 to FY26. This growth is driven by increasing incomes, improved affordability, and substantial government support.

As the industry continues to evolve and expand, it is expected to play a crucial role in addressing the housing needs of millions and contributing to the overall growth and development of the nation.

Thus, the next few years are anticipated to yield favourable financial outcomes for HFCs. Bajaj Housing Finance is well-placed to profit from the growth of the sector.

Cons

#1 Presence in Only One Sector

The housing boom in India is great for the company's business. But at the same time, its fortunes are full dependent on this one sector.

While it's revenues are diversified as far as HFCs are concerned, the fact remains that a slowdown in the real estate market will directly affect its growth.

There are also regulatory risks associated with the real estate market which impact the sector from time to time. The company will be negatively affected if these changes were to impact demand.

#2 Expensive Valuations

No matter how good the fundamentals of the business may be, investors who are interested in a stock should pay close attention to the price ratios.

In the case of finance companies, the price to book (PB) ratio is to be considered.

The price to book (PB) ratio of Bajaj Housing Finance was 3.2 at the time of the IPO.

With the price more than doubling on listing day, the stock's PB ratio will be around 6.5 now.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...