Looking to apply for Bajaj Housing Finance IPO? SBI Securities highlights 4 risk factors

Bajaj Housing Finance IPO: India's second-largest housing finance NBFC company, Bajaj Housing Finance (BHF), is set to open its initial public offering (IPO) for subscription from September 9-11. As of Q1FY25, the NBFC has assets under management (AUM) of Rs 97,071 crore.

Before applying for the BHF IPO, domestic brokerage, SBI Securities has highlighted four key risk factors about the company, including mortgage, provisioning, and concentration. Here are all the risk factors of the Bajaj Housing Finance company:

1. Mortgage risk: According to the brokerage, BHF has most of the earnings from mortgages, which depend on real estate prices.
"The company’s offerings are dependent on real estate prices, disposable income levels of customers, and monetary policy rates by RBI," SBI Securities said in the IPO prospectus.

"Any significant decline in property prices or shift in the monetary policy by the RBI can adversely affect the company’s ability to realise the full value of loan collateral," it added.

2. Provisioning risk: According to analysts, one of the key risks facing the company is provisioning risk. They said that the company is required to make provisions for Expected Credit Loss (ECL) on all its loans outstanding on the reporting date... any error in computing historical loss & recovery trends could adversely affect the carrying values of loans, impairment on financial instruments, which in turn, could have a consequential impact on profitability.

3. Regulatory requirements: Analysts at SBI Securities also warn about regulatory requirements that the company must comply with RBI regulations on capital adequacy, liquidity coverage, and principal business criteria ratios. Failure to meet these requirements could have a material adverse effect on the business.

4. Concentration Risk: Due to its limited contentration, it can be one of the major risk factors for the NBFC.

According to the brokerage, the company's AUM is concentrated in five states: Maharashtra, Karnataka, Telangana, Gujarat, and New Delhi.

"Any significant disruption in these regions, such as social unrest, economic downturns, or natural calamities, could impact business operations," they said. The company may need to incur significant expenses and alter its business strategies in response, which could adversely affect its financial condition, according to the brokerage.

Here are the AUM Percentage of the BHF in the states:

Will investment in Bajaj Finance grow?

According to SBI Securities, Bajaj Housing Finance is valued at an annualised price-to-book (P/B) ratio over 3 times during the first quarter of FY25 based on the upper price band on the post-issue capital. "The company’s association with the brand ‘Bajaj’ helps it to enjoy a strong brand equity," the brokerage said.

"We expect the housing finance industry to grow in the range of 13-15 per cent for the next three years and Bajaj Housing Finance is well placed to capitalise on the growth in the housing finance sector," it added.

About BHF issue details

From its IPO, the company aims to raise Rs 6,560 crore through an offer for sale and fresh issue. The price band is set at Rs 66-70 per share, with a total issue size of 99,39,39,394 - 93,71,42,857 shares.

What are the allocation details of IPO?

The IPO allocation of the issue is as follows:

50 per cent for QIB
35 per cent  for retail investors
15 per cent for NIB.

Here are the other details of the IPO:

• Offer for sale: Rs 3,000 crore
• Fresh issue: Rs 3,560 crore
• Issue size: Rs 6,560 crore
• Number of shares: 99,39,39,394 - 93,71,42,857
• Face value: Rs 10 per share
• Post-issue market cap: Rs 58,297 crore