Bajaj Housing shares dip 5% after HSBC initiates coverage with ‘reduce’ rating, predicts 27% downside

Shares of the recently listed Bajaj Housing Finance tumbled 5% in today’s intraday trade to its day’s low of Rs 143.35 after the global brokerage firm HSBC, backed by an earnings slowdown, initiated coverage on the stock with a ‘reduce’ rating and a target price of Rs 110, implying a downside potential of 27%.

Apart from an earnings slowdown, HSBC said that it sees two other threats to the stock’s current valuations.

“First, as per the Gordon Growth model, its current valuation implies a 10% long-term growth and 17% ROE (vs HSBCe of 14.6%). Second, large NBFC (non-banking financial companies) peers with higher ROE, stable growth outlook and at a steep valuation discount are better alternatives,” said the global brokerage firm in its report.


Further, HSBC states that the stock’s valuation of 5.5x FY26e PB and 44x FY26e PE implies steep expectations of AUM and earnings growth. The company’s ROA, however, is at a peak.


EPS growth would slow due to lower AUM growth, pressure on NIM, and normalized credit costs, stated the report.

At 44x FY26e PE, HSBC believes the market is pricing in the company's robust AUM growth, driven by a 41% CAGR in its non-home loan segment and a 30% CAGR in its home loan segment from FY 21-24. However, HSBC notes potential pressure on RoA.

“The 2.4% RoA as of FY24 was on the back of an optimised AUM mix, operating leverage and muted credit costs. In our view, going forward, margins would likely compress, and credit costs would normalise. Operating leverage would not be enough to offset this pressure and RoA would compress as well. The core-RoE of prime home loans (c58% of AUM) is 11-12%. With diversification, a RoE of 13-14% is sustainable. Overall, we expect EPS growth of c17% over FY24-27e compared to c41% over FY21-24,” the report added.

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Further, while the growth in HL would still be higher than the system, further acceleration would be challenging and the global brokerage firm estimates AUM growth to slow to about 26% CAGR over FY24-27e.

In the prime housing space, Bajaj Housing Finance is currently the second largest, the fastest growing and a high-pedigree housing finance company (HFC) in India.

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