Why Bajaj Housing Finance Shares Are Hitting Upper Circuit

The IPO saw over Rs 3.3 lakh crore in demand, with the company stock listing at a significant premium of 114% at Rs 150 per share to the issue price of Rs 70 per share. The share closed at Rs 165 apiece at end of trade on Monday.

It is estimated that only nearly 2.5-4% of the equity shares will be freely available for trading on the first day and this liquidity will decline over the next few days till the first anchor shares, accounting for 12.55 crore shares, come out of lock-in post Oct. 12. These anchor shares amount to 1.51% of the post-issue equity.

The issue consisted of 93.7 crore shares (11.25% equity), which included a fresh issue and offer for sale by parent Bajaj Finance Ltd.

Of this, only 68.60 crore shares or 8.24% equity is free to trade on listing.

Domestic and foreign investors (including the anchor shares) held only 4.87% equity shares in the company at the time of listing, as shared with the stock exchanges. But only 1.85% of the institution shares are free to trade. It is expected that institutions may not sell their shares given they would need to add further shares to their portfolio.

That leaves only 6.39% equity available for trade. Of this, existing shareholders account for 0.9% of the equity capital and most shareholders who were allotted shares may not exit these shares at this point in time.

Therefore, the total liquidity available post listing is likely to be only 5.53% of the equity. Assuming only 50% of the shares will be sold by the public, the available liquidity for Bajaj Housing Finance equity will be at least 2.76% on the first day. This liquidity will decline further, as the demand increases and supply squeezes, thereby leading to share price rise till anchor shares are freed post Oct. 12.

Bajaj Housing Finance is expected to trade at 5.7 times the adjusted price to book, assuming it doubles on listing. The multiple will rise further if the price moves up further, making it a premium valued company on listing.

Whether mutual funds and FPIs will exit post listing will be a matter of choice, given the parent has been a multi-bagger for many investors, especially institutions.

It is noteworthy that post Dec. 11, all anchor lock-in shares will be released.