Bajaj Housing Finance sees clear runway for growth amid expanding mortgage market, says MD Atul Jain

Atul Jain, Managing Director of Bajaj Housing Finance, in an interview to CNBC-TV18, highlighted the robust growth trajectory of the company amidst an ever-expanding housing finance market.

With assets under management (AUM) growing at a compounded rate of 31% over the past three years, Jain stressed that while past growth is not necessarily indicative of future performance, the company’s relative size, at ₹97,000 crore, still leaves significant room for expansion.

He believes the company has a “clear runway” for future growth, driven by the ongoing demand for housing loans and a mortgage market expanding at 12-15% industry-wide.

Jain’s outlook is rooted in the diverse range of financial products the company offers, including home loans, loans against property, and construction finance. Regulatory requirements ensure that 60% of the company’s total assets must be tied to residential loans, with 50% specifically focused on home loans.

Jain also reiterated that the capital-raising efforts, while necessary for diversifying funding sources, won’t significantly alter the company’s growth trajectory or margins.

“Bajaj Housing Finance has always been well-capitalised and has enjoyed competitive borrowing costs due to its highest credit rating,” he said and assured that the ongoing public capital-raising process will not impact his firm’s net interest margins, as the cost of borrowing will remain stable.

The ₹6,560-crore IPO of the Bajaj Group company generated an overwhelming response, with bids amounting to ₹3.24 lakh crore. This resulted in an overall subscription rate nearly 64 times the available shares. The retail individual investors (RIIs) segment saw a subscription of over seven times, while the demand from qualified institutional buyers (QIBs) surged to 209.36 times. Meanwhile, the non-institutional investors (NII) category witnessed a subscription of 41.51 times the shares offered.

Prior to the IPO launch, the company secured ₹1,758 crore through its anchor book, attracting major institutional investors such as the Government of Singapore, ADIA, Fidelity, Invesco, HSBC, Morgan Stanley, Nomura, and JP Morgan. The IPO was priced within a range of ₹66-70 per share.

Bajaj Housing Finance shares will debut on the exchanges on Monday, September 16, 2024.

Below is the verbatim transcript of the interview.

Q: Housing finance is the sweet sector, long runway for growth, unending demand. Bajaj Housing comes from a stable which is really very highly rated, so cost of funds is not a problem. So what should we expect in terms of AUM growth at Bajaj Housing for the next many years? What’s the ideal net interest margin for Bajaj Housing going to be from here on?

Jain: During the IPO process, we cannot talk about projections. But what we can refer is what we have delivered till today. We have been growing in last three years, at rate of a 31% AUM. Past growth is not a reflection for the future growth. But the housing market is very big. Our absolute size is at Rs 91,000 crore of assets as of 31st March and Rs 97,000 crore of assets as of a 30th of June, look reasonably big, but compared to the market size, I think we are still very small.

So all segments of the market, whether it’s a home loan, loan against property or a construction finance, I think all segments of the market, have a clear runway and a very large runway, given country is growing, given housing demand is growing, given mortgage segment itself has been growing at the rate of 12-15% across industry. So we believe, given our relative size, we have a reasonable path and a highway to grow.

Q: So on a Rs 1 lakh crore book, can you continue with the historical growth rate?

Jain: Our attempt will always be to grow faster than the industry. Given even our relative size compared to the market being lower, we feel that we have a clear highway in front of us.

Q: For you, per se, the developer finance book has been growing faster. Is that something that will continue for the next two to three years? Also, in terms of the products that you offer, for the next two to three years, which ones are growing faster? Where will we see, perhaps a little bit of slowdown?

Jain: Since we are registered as a housing finance company, there is a regulatory construct on our asset composition. First regulatory construct is, 60% of our total assets have to be residential and 50% have to be home loan. So construction finance is a part of the non-Home Loan segment, because, as a regulatory construct, only 50% of the assets can be which are non-home loan. So construction finance, lease rental discounting and loan against property, we take a view, depending upon at a point of a time in the market, what is the return versus risk in that construct. If the market had been growing faster for construction finance in last two years, we have grown faster. If the market grows in future in other segments faster, and we believe the opportunity to grow there and the risk return ratios are better, there we will grow.

For construction finance, we also have a requirement to keep on working in the way we work, because it acts as a funnel for home loan, which is our retail business, because it helps us build the relationships in the market. Developers are the primary sales points, and if we have relationship with them, it helps us to be present in their counter for home loan. So again, a clear pathway, I think, depending on the market situation, and as market grows in construction finance, there has been a housing boom and it remains, the demand remains, so happy to keep on growing.

Q: Last three years, your loans have compounded at a little over 30% just wanted to know, when you say it’s a highway, is it compounding at 25 to 30% or probably higher, now that you get a little more money into your kitty as well, just a rough range over a medium term period that you’re aspiring to grow at?

Jain: We cannot be specifics in terms of a range, but like I said, that highway to growth is there. And just to add the point, money raising is not going to change the highway to growth, because we have been well capitalised. So the capital had been available as a private company, as well as 100% subsidiary of Bajaj Finance, we had been raising capital as and when required. This is an effort to diversify the source of capital. We have been raising money on the lending side, separately from the parent company. But now this is an opportunity, because having reached a particular size, we felt there is a time for us to diversify the sources of capital. So this is a diversification of a capital source, not in a way creating an extra width for growth. The growth which would have happened as a private company would continue to happen as a public company as well.

Q: So with capital being diversified, you getting capital from other sources as well, what does that then do to your margins? Because, if the growth side is intact, it is the liability side which you are diversifying right now. What happens to your margins? Do you have any targets on improvement out here?

Jain: No impact on margins from the capital raise. For some time when there is capital excesses the margins expand because your leverage ratios go down. But on the borrowing side, since we already enjoy the highest credit rating in the country from the credit rating institutions and lenders have been having the confidence on the parentage and our track record, we have been borrowing at quite competitive prices. So we don’t expect the compression in the cost of borrowing by public issue or by going public, or expansion in the margin or a contraction in the margin. Margins are not getting impacted by our raising money through public, the only impact which is the impact of excess of capital for a period of time, that expands margin to a certain extent.