HSBC Predicts 27% Downside for Bajaj Housing Finance Amid Slowing Growth and Margin Pressure

Bajaj Housing Finance Ltd. is expected to drop by 27%, according to HSBC Global Research, which has started covering the stock with a ‘reduce’ rating.

HSBC set a target price of Rs 110 per share, down from the previous close of Rs 150. The market currently values Bajaj Housing Finance based on its strong growth, but this growth is expected to slow down.

The lender needs to maintain a minimum of 60% of its loans as housing-related to keep its housing finance license.

Currently, 61% of its loans meet this requirement, which means that as it grows its non-home loans, the growth in these loans will start to align more with home loan growth.

While home loan growth will still be better than the overall market, further growth will be difficult.

HSBC estimates that the growth of assets under management (AUM) will slow to a 26% compound annual growth rate (CAGR) from FY24 to FY27.

HSBC notes that the return on assets is at its highest point, and earnings per share growth will slow down.

This slowdown is due to lower AUM growth, pressure on net interest margins, and normalizing credit costs.

As of the end of the second quarter, Bajaj Housing Finance’s AUM was Rs 1.02 lakh crore, compared to Rs 81,215 crore on September 30, 2023.

In the June to September period, the AUM grew by about Rs 5,480 crore, consistent with the growth seen in the previous two quarters.

The company’s loan assets were around Rs 89,860 crore at the end of September, which is a 26.6% increase from Rs 70,954 crore a year ago.

Udpate (14th October, 2024)

Bajaj Housing Finance’s share price fell by over 6% on October 14 after the one-month lock-in period for anchor investors ended.

With this lock-in period over, about 12.6 crore shares, which is 2 percent of the company’s total shares, can now be traded. Previously, these shares could not be sold.

Another lock-in period of three months will end on December 12, allowing an additional 12.6 crore shares, or another 2 percent of the total, to be traded.