Although the margin profile is relatively vulnerable, there is enough scope for improving operational efficiency, which can drive ROE outperformance. Being focused on top-tier salaried customers, competitive returns have put the company at par with banks, while enjoying an edge over smaller players, contributing to AUM growth. However, as cost of funds is relatively expensive for banks, BHFL’s margin profile is relatively weak.
“However, we believe that with the diversity in the asset under management profile (a balanced mix of outperforming loans versus real estate loans, rental discounts and developer loans), management has scope to manage returns. In addition, there is sufficient headroom to improve operational efficiency (C/I ratio of ~24%), which can drive ROE outperformance,” InCred said in its report.
BHFL is valued higher than most of its HFC peers as the company is gaining ground on the back of its extensive customer service. Faster turnaround time due to increased digital adoption in loan processing as well as a high level of digitalisation built in to enhance simplicity and efficiency in customer service are the key features of BHFL that attract low-risk salaried customers to its home loan products.
Read also: ECOS Mobility shares up more than 16% after a strong debut. What should investors do?The national brokerage firm believes that small banks and housing finance companies (HFCs) are not significant competitors to BHFL, given their high interest rates, allowing select balance transfers from small HFCs. In conclusion, stating that “beauty is in the eye of the beholder,” InCred said that BHFL will be a stock to hold for the long term. Bajaj FinanceBHFL’s parent company, has been a pioneer in consumer durables financing and has remained a market leader over the years, despite aggressive competition from banks and credit card companies. While recommending to underwrite the IPO, the national brokerage firm said it believes that the management of BHFL has the vision and capability to explore the same over the years, making the company attractive over the medium to long-term horizon.
Meanwhile, shares of Bajaj Finance closed stable around Rs 7,300 on BSE on Wednesday.
(Disclaimer: The recommendations, suggestions, views and opinions of the experts are their own and do not represent the views of Economic Times)
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