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00:00Mr. Jignesh Shial, who is a Director Research at and Head of the BFSI sector at INCRED Capital.

00:08Welcome Mr. Shial. Now, first off, I want to talk to you about the Bajaj Housing Finance IPO,

00:14your quick views, both with regard to the listing and the justification of valuation. Now,

00:20nearly at six and a half times plus price to book one year forward.

00:23Yes, hi and thanks for inviting me. Obviously, we have been liking the stock considering they

00:32have done pretty well in the last three years and last three to five years altogether,

00:3891,000 crores kind of an AUM and they have the right mix of AUM and all and has an ability to

00:46grow also quite in a similar kind of a way. Obviously, there have been liking for such names

00:52where there is a pretty strong promoter background along with that the quality of growth is pretty

00:58good and the compounding value, I mean, the growth is also compounding in nature. Obviously,

01:04people are going to like it up. It's a little bit stretched for a while. I think listing a lot of

01:10you know people are right now in kind of a happy mood right now. Gradually, we think there could

01:17be some consolation or correction is likely but over a mid to long term period of time,

01:21we continue to like this name. I think they will look quite better just like the parent.

01:27All right, Mr. Dignesh, for a lot of people like us who have not actually gotten the privilege of

01:32getting the IPO allotment, do you think it's the right time to buy Bajaj Housing Finance?

01:36Look, I mean, as you guys rightly pointed out, you know, being in housing finance company with

01:41my teens kind of an ROEs and two-person kind of an ROA, doing six and a half times, it's

01:48a little stretched kind of a valuation but you know, as I said, there could be some in the near

01:52term, there could be some consolidation or correction might be possible purely based on

01:55valuation but if somebody is looking for mid to long term kind of a horizon, I think it's pretty

02:00good story to, you know, opt for because housing finance is a safe asset. The management is pretty

02:05good and growth seems to be, you know, in a pretty good shape at least for now,

02:09at least for next couple of years. Got it. Dignesh, let me talk specifics,

02:14you know, growth. Till FY24, the company has clocked an AUM CAGR of 72% which is

02:24just phenomenal for the kind of base that it has. Continues to do almost 35% AUM growth.

02:32Do you believe a 30% to 35% kind of CAGR over the next three years is something you would pencil in

02:39as an analyst? Yeah, sure. I mean, if you see housing finance,

02:46I mean, mortgages is a pretty big market and Bajaj at 21,000 crores still remains a pretty

02:50smaller player out of it. They have a reach, they are able to, you know, reach to deeper pockets,

02:56I mean, deeper geographies all together and they have that kind of networking as well as,

03:01you know, deep pockets to, you know, manage that kind of growth. So, still doing 30-35%

03:06kind of a growth at 90-91,000 crores kind of an AUM is still a pretty much likelihood possibility

03:12for somebody who is, you know, for next three to five years if somebody is looking at it.

03:16I think doubling the balance sheet is also not something pretty much impossible kind of a task.

03:21It's quite likely that they will be able to manage it up the way how they have a reach as well as

03:25the strong balance sheet. So, essentially, they will double up every two years because

03:30they compound at 35%? I think three, three and a half years is more likely. I'll be giving it

03:37somewhere between 30% kind of a number. So, roughly around three years is something which

03:41is quite likely. Okay, understood. I get your metric. Okay. And just as they go about doubling,

03:47right, so maybe 25-30% kind of growth is what you are ascribing. Maybe if they double in three years

03:53likely. What's the kind of operational efficiency which starts to kick through? Because

03:58essentially what's happening is your ROAs have expanded on a consistent basis. They

04:02are on an improving trajectory over the last three to four years. Do you believe that ROAs

04:07can breach the 3% or even 4% mark, which a lot of housing financiers, at least the smaller ones,

04:12more efficient ones are doing? Rather than, you know, purely efficiency,

04:18the smaller affordable guys basically has a relatively better spread or relatively

04:26larger spreads. They make it up because they are into a kind of more into affordable segments

04:31or riskier segments altogether. But that, I think, is far more conservative in that particular space.

04:36They have a much more balanced mix with having 56%, 57% of housing, a bit of a lap,

04:43LRDs as well as corporate. I think, you know, they will be more aspired to do, you know,

04:47kind of mid-to-premium housing altogether rather than being completely ticked towards affordable

04:52ones. So, maybe margin will be more or less, you know, in the similar range what they used to make

04:57it up, you know, will be more similar to large banks or large NBFC rather than pure affordable

05:03housing finance companies. The operating leverage can still kick in over a period of time because,

05:06you know, HDFC had one of the finest models as far as OPEX was concerned. They used to do,

05:11you know, cost to income in the single digit itself. But that is a long way to go. But I think

05:16operating leverage can be a big trigger which can play out over a period of time once, you know,

05:23the company achieves a kind of a size. Margin trajectory, I think, should remain more or less

05:28similar because they are quite competitive with large private sector banks and PSB banks like

05:34SBI and all. So, I think in that particular concept, I think the margin expansion would

05:39be fairly limited. So, I think from 2 to 2.1, I think reaching towards, you know,

05:44aiming to reach towards 2.5 or 3 would be a far more interesting thing to watch out for. But

05:51crossing 2.5 or 3 and reaching to 4, I think that would be a little difficult task to do at least

05:56considering the kind of asset mix they have right now. Right. So, Jignesh, then what do you prefer?

06:02Do you prefer small financers or do you prefer bazaar housing when it comes to both valuation

06:07and growth? Look, I think bazaar housing is something that I will be considering, you know,

06:14more comparable to large private sector banks or a large HFCs like LIC and PNB and all. But,

06:22well, you know, you have to think about those valuations are a little expensive right now,

06:25whether you have to think about, whether you have to, when you are thinking about, you know,

06:28selecting a private sector banks within that particular space, even bazaar housing will be

06:32one of the options that investors can look into it and all. Affordable housing one is more like

06:37a small and mid-cap kind of an idea which, you know, generally has a kind of high growth,

06:42high returns and, you know, relatively higher risk also involved with it. So, I think bazaar

06:48housing I will compare more as a selection for a mid to long term kind of a period and that too,

06:53you know, selection would be more within the large private sector banks and large PSC banks rather

06:58than purely comparing it with affordable housing companies in general.

07:03And therefore, if I were to just try and compare metrics, right, you are generally or private

07:12sector banks, ROA is roughly 2% or 1.8 to 2%, bazaar housing is doing nearly 2.5% in terms of

07:19ROA and you are also seeing stronger growth in bazaar housing. Where should the fair valuation

07:26lie in your view? So, when we had written a couple of notes already, we were basically expecting

07:34them to, you know, list the subsidy in the range of 3, 3.5 times price to book. I mean, the pricing

07:39had come up almost in the similar range. Now, you know, giving it further premium to it, it all

07:45depends upon, you know, the kind of risk appetite the investors has it. But I think giving it even

07:51little further premium to it considering, you know, bazaar is a brand and pretty strong promoter

07:56background and all. I think giving it around 4.5 to 5 would be, you know, quite, quite likely

08:01possibility that I will be comfortable with it. Over and above, if somebody wants to go for it,

08:06then I think it will be little stretched than what we are expecting. And thus, 4, 4.5 will

08:10also be justified by the kind of growth they are doing. Got it. Jignesh, now from Bajaj Finance's

08:15perspective, what does this do? Because you have got one third of your book now in a separate

08:20listed entity. Can Bajaj Finance grow faster? Do the ROAs get better? Because part of that

08:26two and a half percent kind of ROA book is out of the Bajaj Finance fold. How is it looking now

08:33overall? Absolutely, absolutely. You are completely bang on on the analysis. I think the

08:39standalone Bajaj Finance should do relatively better ROAs because, you know, the NEO have

08:44been doing pretty good, 4.5 to 5 kind of range. I think they will be, you know, seeing a kind of

08:49improvement. But I think overall ROAs might still remain relatively, you know, subdued because

08:55obviously, being an housing finance subsidiary, the ability to take a leverage generally improves

08:59because of the lower risk that housing finance generally contains. And Bajaj standalone has

09:04relatively, you know, more unsecured kind of a book under the kitty, though they are growing

09:08further on asset-backed model altogether. But I still feel ROAs might not jump up in that manner,

09:13but ROAs definitely should see a kind of an improvement for standalone entity altogether.

09:18Awesome. Thank you so much, Jignesh, for all of that perspective,

09:21completely out of time on this edition of The Smith Show. Thanks, Jignesh.

Bajaj Housing Finance Debut : A Game-Changer For Housing Finance? InCred's View | NDTV Profit

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