Bajaj Housing Finance IPO frenzy: Investors rush in as grey market predicts huge listing gains

The highly anticipated Bajaj Housing Finance Limited Initial Public Offering (IPO) opened today, September 9, 2024, creating waves in the market with expectations of substantial listing gains. The company, backed by the well-established Bajaj Group, aims to raise Rs 6,560 crore through this IPO, which has generated significant excitement among investors, particularly due to the strong demand and performance signals coming from the grey market.

IPO Structure and Objectives

Bajaj Housing Finance Limited is offering its shares through a mix of a fresh issue and an Offer for Sale (OFS). The fresh issue of shares aims to raise Rs 3,560 crore, while the OFS by parent company Bajaj Finance Limited will contribute Rs 3,000 crore. The primary objective of this IPO is to strengthen the company’s capital base to support its future growth trajectory, which includes expanding its lending capacity and meeting RBI’s requirements for higher-layer non-banking financial companies (NBFCs) to be listed by September 2025. This financial infusion is also expected to help Bajaj Housing Finance diversify its product offerings and enhance its market presence in the housing finance sector.

The IPO price band is set between Rs 66 and Rs 70 per share, providing a potentially lucrative entry point for both retail and institutional investors. Additionally, Bajaj Housing Finance has reserved a specific quota for shareholders of Bajaj Finance and Bajaj Finserv, allowing them to apply under more favorable terms if they held shares as of August 30, 2024.

Grey Market Premium and Expected Listing Gains

One of the most talked-about aspects of the Bajaj Housing Finance IPO is its grey market premium (GMP). As of the opening day, the shares are trading at a premium of Rs 56 in the grey market. This suggests a possible listing price of Rs 126 per share, indicating a potential gain of nearly 80% over the upper end of the IPO price band of Rs 70. The GMP has shown a steady increase in recent days, reflecting strong investor sentiment and expectations for significant listing gains. Market observers often view the grey market as a bellwether for how an IPO might perform on its listing day.

Expert Opinions on the Bajaj Housing Finance IPO

Financial experts and analysts have largely given a positive outlook for the Bajaj Housing Finance IPO, recommending investors to subscribe to the offering for both short-term gains and long-term potential. Analysts from several brokerage firms have pointed out that the IPO’s valuation is reasonable given the company’s growth trajectory, its solid financial performance, and its strategic focus on expanding its direct home loan origination and increasing its average ticket size across various products.

One of the leading analysts noted that Bajaj Housing Finance, with an Assets Under Management (AUM) of Rs 971 billion as of Q1FY25, is among the largest non-deposit-taking housing finance companies promoted by Bajaj Finance. The company’s focus on improving its risk management practices and maintaining a robust credit underwriting process has been highlighted as a key factor in mitigating risks and enhancing its asset quality.

Company Performance and Financial Metrics

Bajaj Housing Finance has shown remarkable growth since it started its mortgage lending business in 2018. The company has a network of 215 branches across India, focusing primarily on the top 20–30 cities for its mortgage lending operations. Between FY22 and FY24, its AUM grew at a compound annual growth rate (CAGR) of 30.9%. As a result, it has been ranked by the Reserve Bank of India (RBI) as the fourth fastest-growing NBFC in India’s upper-layer category. The company’s debt-to-equity ratio is 5.7, with a Return on Net Worth (RoNW) of 3.6% and a Price-to-Book Value (P/BV) of 3.72 on the upper price band, further underlining its strong financial position.

Should You Invest in Bajaj Housing Finance?

The Bajaj Housing Finance IPO presents a strong investment opportunity for those looking to capitalize on its expected listing gains and long-term growth potential. The combination of a strong brand, sound financial metrics, and strategic market focus makes it an attractive bet for both retail and institutional investors. Given the current grey market premium and the company’s solid financial standing, many analysts advise subscribing to the IPO.