Bajaj Housing Finance Ltd (BHFL) has made an exceptional mark in the stock market following its debut, continuing to soar after its listing on September 16. The company’s shares, which were offered at an IPO price of ₹70, have now jumped by more than 159%, reaching a high of ₹181.48 during intraday trading on September 17.

The initial public offering was met with immense demand, oversubscribed by an astonishing 63.61 times. Investors poured in bids for over 4,628 crore equity shares against the 72.75 crore shares available, with the total applications valued at close to ₹3.24 lakh crore.

The overwhelming response to the IPO has fueled optimism among investors and market analysts alike. Phillip Capital, a brokerage firm that recently initiated coverage on the stock, has a positive outlook for BHFL, forecasting a potential 27% upside over the next year.

This follows the company’s meteoric rise in just two days since listing, where investors saw their capital double with shares debuting at ₹150, a 114% premium over the issue price.

Phillip Capital’s evaluation of BHFL’s prospects highlights the company’s strong positioning in the housing finance sector. According to the brokerage, BHFL’s strategic focus on salaried home loans and top-up loans differentiates it from its competitors, allowing it to tap into a high-quality customer base.

The brokerage notes that around 90% of BHFL’s home loan customers are salaried individuals, which has helped the company maintain stable credit costs and low operational expenses. With these efficiencies, BHFL has been able to offer competitive pricing while maintaining healthy margins.

The brokerage sees multiple scenarios playing out for the stock over the coming year. While the base case predicts a 27% rise, a bull case could see the stock climb by more than 35%, depending on market conditions and the company’s continued strong performance.

Phillip Capital’s analysis is based on an assumed P/E multiple of 30x, which is around 20% below the standard deviation of its parent company, Bajaj Finance. This conservative valuation takes into account a 15% holding company discount, despite the lack of any tax obligation that would warrant such a discount.

BHFL’s rapid rise in the housing finance market has been impressive. The company, which has been in operation for only six years, has already established itself among the top seven mortgage originators and top three housing finance companies in India.

Its focus on low-risk, salaried home loans has allowed it to maintain a gross non-performing assets (GNPA) ratio of between 0.6% and 0.8%, a key metric that speaks to its disciplined lending practices. This focus on credit quality has earned BHFL an AAA rating from both CRISIL and India Ratings, further boosting investor confidence.

In addition to its conservative lending practices, BHFL’s growth strategy has been underpinned by its ability to leverage the extensive customer base of its parent company, Bajaj Finance.

With access to over 88 million customers, BHFL has been able to cross-sell its housing finance products to a wide audience, bolstering growth. This synergy has been supported by a steady infusion of capital from Bajaj Finance, which pumped in ₹2,500 crore in FY23, followed by an additional ₹2,000 crore via a rights issue.

As the company continues to scale its operations, its balance sheet is expected to exceed ₹2 lakh crore in the next three years. Phillip Capital projects that credit costs will remain benign in the near term, further supporting the company’s growth trajectory.

BHFL’s focus on high-yield segments, such as Lease Rental Discounting (LRD) and construction finance, is expected to drive long-term profitability. The company’s construction finance portfolio, which makes up between 8% and 10% of its total loan book, has been described as range-bound, providing a steady source of income without significantly increasing risk.

Looking ahead, Phillip Capital expects BHFL to continue delivering strong return ratios, with a projected Return on Assets (RoA) of over 2% and Return on Equity (RoE) above 12% in the coming years. As the company’s expense ratios improve, these return ratios are expected to further enhance, making BHFL one of the most attractive players in the housing finance space.