Bajaj Housing Finance gets first 'Buy' call; PhillipCapital sees 27% upside

PhillipCapital pegs Bajaj Housing Finance's balance sheet at over Rs 2 trillion in three years

PhillipCapital has initiated coverage on the newly listed Bajaj Housing Finance with a 'Buy' call. The brokerage has given a target price of Rs 210 and sees a 27 per cent upside from Monday's closing price of Rs 165 per share.

"We would look favourably at Bajaj Housing Finance for its acute focus on salaried home loans, steady expense ratio, and benign credit costs, manifesting strong return ratios. We value Bajaj Housing Finance at 6.5x Sep-26 BV," the report read.

Analysts at PhillipCapital believe that Bajaj Housing Finance has a higher return ratio than its peers as it sources around 40 per cent of its home loans from its parent company, Bajaj Finance's customers. Additionally, Bajaj Housing gives around 90 per cent of its home loans to salaried customers which reduces costs leading to a lower expense ratio in the medium term and augments its risk-adjusted spreads.

 

Meanwhile, Bajaj Housing Finance, as per PhillipCapital, stands out from its peers as the company offers top up home loans in addition to the original home loan, which boosts its yield in this highly competitive market.

Bajaj Housing Finance is scaling up its Assets Under Management (AUM) per branch and is closing in on its competitor LIC Housing Finance. Meanwhile, its AUM per employee is at par with Can Fin Homes.

"Bajaj Housing's borrowing cost is better than Can Fin Homes', and its risk-adjusted spreads are lower, reflected in Return on Equity (RoE)," the report read.

Further, Bajaj Housing is in a league of its own as per analysts at PhillipCapital, as it has a ticket size of Rs 0.5 crore for many home loan aspirants with around 65 per cent of home loan originations in India.  

Meanwhile, they peg Bajaj Housing's balance sheet at over Rs 2 trillion in three years.

"The company's increasing focus on Lease Rental Discounting (LRD), a high-yield segment that provides operating leverage with scale. The CF (construction finance) book will be range-bound at 8-10 per cent of its total book," the report read.

The company's near-term credit costs are believed to remain benign with its focus on building a low-risk balance sheet with a return on asset (RoA) and Return on Equity (RoE) of more than 2 per cent and 12 per cent, respectively, in FY25-27.

Moreover, PhillipCapital is confident that with scale, Bajaj Housing has scope to improve its expense ratios, implying an improvement in return ratios.