Bajaj Housing Finance IPO: The jaw-dropping response to the initial public offering (IPO) of Bajaj Housing Finance may aid the recent rally seen in most of the shares of housing finance companies, albeit for a short-term, believe analysts.
They, thus, advise investors to focus on the fundamentals of the individual companies and accumulate the shares on dips from long-term gains.
Most of the housing finance stocks, he added, are trading near their fair value. Lucrative returns, therefore, will be generated by the ones that are able to manage their margins and asset quality in a better way.
On the bourses, shares of housing finance companies have traded mixed since Bajaj Housing filed its draft red herring prospectus (DRHP) with market regulator Securities and Exchange Board of India (Sebi) on June 14, 2024.
Share price of PNB Housing Finance has surged 33 per cent since then till September 11, followed by India Shelter Finance Corp (8.3 per cent), Aadhar Housing Finance (4 per cent), CanFin Homes (3.67 per cent), and Home First Finance (3.4 per cent), ACE Equity data shows.
By comparison, the Nifty50 has added 6.2 per cent, and the Nifty Financial Services 5.2 per cent on the National Stock Exchange.
Bajaj Housing Finance: A ‘branded’ IPO
On Wednesday, Bajaj Housing Finance became the second IPO whose bids made by investors beat shares on offer by a wide margin. The Rs 6,560-crore offering received bids worth over Rs 3.2 trillion. Back in 2008, Reliance Power’s Rs 11,563-crore IPO had bagged bigs worth Rs 7.5 trillion.
The response, analysts believe, has more to do with ‘brand Bajaj’ rather than investors’ perception of the housing finance sector, in general.
“Bajaj Housing Finance IPO saw huge investor demand due to its linkage with Bajaj Finance. The parent non-bank finance company (NBFC) is a large, well-marketed company with a wide retail reach. While a part of the response may be attributed to the IPO frenzy and sufficient liquidity, the housing finance arm belongs to Bajaj Group, having a stable management,” said Nipun Lodha, director – corporate finance, PL Investment Banking.
They added that housing financiers have been consolidating on the bourses amid tight monetary policy regime, and any reversal in the policy stance ahead may yield positive impact on select housing financing companies.
According to an analysis by global brokerage Nomura, the spread between 10-year government securities (G-sec) and repo rate has come down to 0.4 per cent, compared to the long-term average of 1.2 per cent. This indicates that the bond market is pricing in substantial rate cuts from the Reserve bank of India, it said.
Assuming a 50-basis point repo rate cut, the brokerage sees Bajaj Finance’s (consolidated) cost of funds improving by 25 bps by FY26, by 23 bps for LIC Housing, and 28 bps for CIFC.
Nomura has increased target price for Bajaj Finance to Rs 7,500 (Neutral), Rs 1,930 for Bajaj Finserv (Buy), and Rs 1,300 for CIFC (Reduce). It has cut target price for LIC Housing to Rs 700 (Neutral), and maintained target of Rs 550 for Aadhar Housing Finance (Buy).
First Published: Sep 12 2024 | 1:51 PM IST
