This signals a potential downside of 21% in the stock.
“Bajaj Housing Finance trades rich (4.7X book and 39X earnings FY2026E), posing downside risk (21% to our FV of Rs100) and drives our SELL rating,” said the domestic brokerage firm in its report.
Kotak Equities expects Bajaj Housing Finance to deliver earnings growth of 25% CAGR (16% EPS CAGR) over FY2024-27E on the back of 24% AUM growth, stable margins, lower operating expenses and inch up in credit costs. Recent capital issuance will offset the pressure on the cost of borrowings, leading to flat margins, reduced leverage while growth remains strong.
Hence, near-term RoE may remain range bound at 13-14%, with expectations of mid-teen RoEs over the medium-term.
However, it was also noted that Bajaj Housing Finance, India’s second-largest housing finance company with Rs 91,400 crore AUM (FY24), targets prime housing with focus on mass affluent salaried borrowers.Growing at 29% CAGR (FY20-24) with a projected 24% CAGR (FY24-27E), its portfolio comprises home loans (58%), lease rental discounting (19%), LAP (10%), and developer loans (11%). The company has recently expanded into near-prime and affordable housing segments.Also read: DMart shares skyrocket 15% after Q3 update shows 17% YoY revenue growth
Additionally, the company reported a robust asset quality performance with gross stage-3 of 0.3% in FY2024, low NPLs in non-retail segments set it apart from large peers with a volatile track record.
“We expect credit costs to remain moderate at 7-17 bps over FY2025-27E, driven by stable delinquency and coverage ratios. Apart from focus on low-risk salaried and mass affluent segments, centralized underwriting processes augmented by digitized credit processes and collection teams, have supported low NPLs,” said Nischint Chawathe, Analyst at Kotak Equities.
Effective execution of its business strategies to sustain high growth, risk to NIM from migration to EBLR or sharp rate movements and intense competition in the prime segment have been noted as the key risks to the company’s business.
Around 1:30 pm today, the shares of Bajaj Housing Finance were trading flat at Rs 126.50.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
