India's mortgage IPO builds on many riches

Bajaj Housing Finance

16/09/2024 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own. Refiles to add dropped words in the
fourth paragraph and adds graphic.)
    By Shritama Bose
       MUMBAI, Sept 16 (Reuters Breakingviews) - Is India's
equities rally built to last? Shares of Bajaj Housing Finance
 BAJO.NS  surged 125% on their first day of trading in Mumbai on
Monday , handing the mortgage lender a nearly $16 billion market
capitalisation. While there is plenty to cheer about the
debutant, the price dynamic offers a warning on valuations in
the country.
    Bajaj was bound to be an investor darling, much like its $56
billion parent Bajaj Finance  BJFN.NS . The float helps the
market leader in loans for consumer goods comply with a
regulatory mandate to list large shadow banks. Mortgages too are
in hot demand in the world's fifth-largest economy, a stark
contrast to China where the market is shrinking. 
    Steady urbanisation and rising incomes are leading more
Indians to buy homes. The value of Bajaj's outstanding home
loans rose 24% to more than $6 billion in the year to March. It
focuses on borrowers in their late thirties who draw annual
salaries of around $15,500, seven times India’s per capita
income. Applying Bajaj's average loan-to-value ratio of 70% to
its mean ticket size, the price of the typical home it finances
is over $78,000. Loans for homes in this top end of the
mid-priced category are growing 24% year-on-year.
    It helps that Bajaj logs exceptionally low default rates:
sour loans make up less than 0.3% of its book. The $800 million
IPO valued the company nearly three times its book value for
financial year 2026, per Macquarie, less than its parent.
Following the merger of HDFC with HDFC Bank  HDBK.NS  in 2023,
Bajaj emerges as the top publicly listed specialist mortgage
lender by assets under management, excluding state-backed
rivals. 
      For all Bajaj's qualities though, the share price surge
deserves scrutiny. Cautious pricing helped to reel in anchor
investors including Singapore's GIC and Abu Dhabi Investment
Authority. It also implies the family, the parent company and
its bankers, including Kotak and Bank of America, chose to leave
money on the table at a time when overall equity market
valuations appear stretched: MSCI India trades at 24 times
one-year forward earnings. That may be hard to build on, whether
or not demand for home loans is robust.
    Follow @ShritamaBose on X

    CONTEXT NEWS
      Shares of Indian mortgage lender Bajaj Housing Finance
jumped 125% on their first day of trading on Sept. 16. 
    The company’s $782 million initial public offer attracted
bids worth $39 billion between Sept. 9 and Sept. 11, data from
bourse operator BSE showed. The government of Singapore,
BlackRock Global Funds and Abu Dhabi Investment Authority were
among anchor investors in the deal.

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Loans for pricey homes are growing fast    https://reut.rs/4egN8PO
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 (Editing by Una Galani and Aditya Srivastav)
 ((For previous columns by the author, Reuters customers can
click on  BOSE/ 
shritama.bose@thomsonreuters.com))