Bajaj Housing Finance shares have struggled since their blockbuster debut on Dalal Street in September 2024, dropping 32% from the ₹165 listing price and ending nine of the last 11 months in the red. The Bajaj group stock is likely to remain under pressure amid rising competition from banks, which could weigh on yields, according to Motilal Oswal.
The brokerage, in its latest report, has initiated coverage on Bajaj Housing Finance with a ‘Neutral’ rating and set a target price of ₹120 apiece, indicating an upside potential of 7% from the stock’s previous closing price of ₹112.
Despite remaining optimistic about the company’s long-term growth prospects, citing its strong asset quality, robust credit profile, leading franchise in the HFC sector, and diversified AUM mix, the brokerage remains concerned that rising competition from banks could impact growth and weigh on the company’s RoE.
What could weigh on Bajaj Housing Finance stock?
BHFL operates in a highly competitive market, facing strong competition from banks and other large HFCs. This competitive intensity, as per the brokerage, is expected to exert pressure on yields as the company seeks to sustain its loan growth momentum, which may lead to a transitory contraction in NII over the near term.
Despite a growing share of non-housing loans (which rose from 38% in FY22 to 44% in FY25), BHFL’s spreads have contracted by 90 basis points over the past three years due to rising borrowing costs, as the company has been unable to pass these costs to customers amid intense competition.
The brokerage projects the company to maintain stable NIMs and spreads in FY26, as the impact of lower lending yields from rate cuts is likely to be offset by a commensurate reduction in borrowing costs. It expects NIM to remain broadly stable at 3.3% over FY26-27.
While NIM and spreads are likely to stay broadly stable, the brokerage anticipates non-interest income to soften this year.
Valuation premium may limit future stock returns
The brokerage expects RoE to remain moderate in the near term, at 12-14%, due to intense competition and relatively low yields in the prime home loan segment. While Bajaj Group’s strong execution capabilities add credibility, the brokerage noted that current premium valuations, when weighed against the modest RoE profile, may result in subpar stock returns going forward.
“BHFL trades at 3.6x P/BV and 29x FY27E P/E, which is a 60% premium to its IPO price. We model AUM, PAT CAGR of 22% each over FY25-28E, with an RoA and RoE of 2.3% and 14% in FY28E,” said the brokerage.
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