Motilal Oswal has initiated coverage on Bajaj Housing Finance with a ‘Neutral’ rating. They have a target price of Rs 120, implying an upside of 7%. The brokerage house valued the share price of Bajaj Housing Finance at a price-to-book value of 3.6x for FY27. They expect a steady flow of returns over the next 3 years.
Highlighting the top drivers and key focus areas, Motilal Oswal listed out what investors should watch out for in the stock amidst high competition –
Motilal Oswal on Bajaj Housing Finance: Strong AUM growth in last five years
Bajaj Housing Finance has posted a strong asset under management (AUM) growth, delivering 29% AUM growth on an annualised basis in the last 5 years. This has been supported by a diversified product suite and robust asset quality.
However, the brokerage expects that one may see gradual sluggishness in its AUM growth, given Bajaj Housing Finance’s increasing scale and rising competition.
According to Motilal Oswal, Bajaj Housing Finance is the fastest-growing and the second-largest housing finance company in India.
Motilal Oswal on Bajaj Housing Finance: Diversified housing finance company
Bajaj Housing Finance is the most diversified housing finance company in the country.
The company offers comprehensive mortgage products that cater to a wide range of customers from individual homebuyers to large-scale developers. To bolster its presence, Bajaj Housing has introduced an affordable housing segment that positions it to serve the entire housing finance ecosystem.
Motilal Oswal on Bajaj Housing Finance: Strong asset quality over peers
Bajaj Housing Finance maintains one of the strongest asset quality profiles among its peers, driven by its strategic focus on large, prime-ticket loans, along with strict underwriting standards and prudent risk management practices. Gross NPA (non-performing asset) and Net NPA have remained consistently benign, ranging between 0.30-0.35% and 0.1- 0.2%, respectively, over the past five years, highlighting the resilience and stability of its loan portfolio.
The strategy through which it could keep the NPA so low is that the company only focuses on affluent salaried borrowers with high credit scores. Bajaj Housing Finance’s 77% of customers have CIBIL scores above 750 in home loans. Plus, the company’s 84% home loans are extended to salaried individuals, leading to a more predictable, low-risk loan book.
Motilal Oswal on Bajaj Housing Finance: How is company reaching customers?
Bajaj Housing Finance sources a reasonable portion (7-10%) of its home loans from Bajaj Finserv’s digital channels, which helps reduce costs (lower expense ratio) and enhance risk-adjusted spreads. This transition to in-house originations resulted in lower customer acquisition costs, increased retention, and improved credit quality.
Motilal Oswal on Bajaj Housing Finance: Intensive competition pressurises NIM
However, Bajaj Housing Finance operates in an intensely competitive market, facing competition from banks and other large housing finance companies. This competitive intensity is expected to exert pressure on yields as the company seeks to sustain its loan growth momentum. This may lead to a transitory contraction in NII over the very near term.
Moreover, the impact of lower lending yields from rate cuts could potentially pressurise NIMs along with sustained competition intensity in the sector. Although low borrowing costs may subside that and maintain the NIMs.