Bajaj Housing Finance Target Set at Rs 125 by ICICI Securities

ICICI Securities’s research report on Bajaj Housing Finance

While BHFL remains committed in scaling all mortgage products, its strategic priorities are – scale, low risk and reasonable return. In order to enhance profitability, it plans to optimise AUM mix by 2-3% in favour of return enhancers like construction finance, LAP and non-prime home loans. Optimum AUM mix would be 12-15% for construction finance (12% currently), nonprime HL would be ~20% of HL book (17%) and LAP would be 10-12% (10%). Further, it plans to improve opex to NTI to 14-15% from 20% currently with scale benefit and tech-driven process. Overall, it expects RoA to remain at 2- 2.2% and RoE at 13-15% over the medium term.

Outlook

BHFL is among the fastest growing HFCs in India – 29% AUM CAGR between FY20-25 vs. similar-sized peers’ growth declining and larger peer growing at 8% during the same period. Its market share increased to 1.6% by FY25 from 1% in FY20. Taking cognisance of its diverse product offerings (HL, LRD, DF and LAP) serving all customer segments (prime and non-prime), it aims to improve its home loan origination market share to 5% from current level of 2.5-2.7%. While BHFL’s focus remains on outpacing industry growth (14-16% CAGR till FY28), it emphasises on operating efficiency and credit quality. It expects opex to NTI to moderate to 14-15% over the medium term from the current level of 20%. Maintain BUY with an unchanged TP of INR 125, valuing the stock at 4x FY27E P/B.

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