Why Jefferies sees limited upside in Bajaj Housing Finance despite its fast-growing loan book
Jefferies initiated coverage on Bajaj Housing Finance with a Hold rating and Rs 92 target, citing limited upside from premium valuations despite strong growth prospects. It expects AUM to grow at a 23% CAGR and earnings per share at 20% through FY29, while return on assets stays near 2% and return on equity improves to 13.6%.
Jefferies analysts have initiated coverage of Bajaj Housing Finance with a Hold rating and a price target of Rs 92 per share. This implies only 9% upside from the current reference price of Rs 84.29. The brokerage cites premium valuations, at 2.6 times March 2027 book value, as the primary constraint on potential upside. Despite robust growth projections, Bajaj Housing's shares trade at a significant premium compared to most housing finance companies.
The analysts forecast a 23% compound annual growth rate in assets under management from FY26 to FY29 and 20% earnings-per-share growth over the same period. They also expect Bajaj Housing to maintain a return on assets of approximately 2% and increase its return on equity to 13.6% by FY29. However, the company's valuation at 2.6 times estimated March 2027 book value and 24 times projected FY27 earnings suggests limited scope for further re-rating.
Bajaj Housing's scale, growth, and asset quality justify a premium, but its return on equity of 13%-14% through FY29 is broadly in line with other affordable housing financiers offering similar growth. Jefferies' scenario analysis indicates an upside case of Rs 103, or 22% above the reference price, if the company achieves 24% assets under management growth and stronger margins. Conversely, a downside case of Rs 73 implies a 13% decline if growth slows and net interest margins weaken.
Despite being India's second-largest housing finance company with Rs 1.5 trillion in assets under management as of June, Jefferies remains cautious. The lender's AUM grew 24% YoY in the June quarter, driven by a 30% increase in disbursements. Bajaj Housing's focus on mass affluent and premium borrowers with an average loan size of Rs 4.9 million contributes to low delinquencies and a competitive funding cost structure.
However, Bajaj Housing's spreads have declined by 23 basis points since the rate-cut cycle began, and net interest margins are expected to moderate by 30 basis points in FY27 as competition forces repricing of the existing loan book.
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