Bajaj Housing Finance shares may fall 27% from current levels, says HSBC #CashNews.co

Brokerage firm HSBC has initiated coverage on Bajaj Housing Finance Ltd., the recently listed housing finance subsidiary of Bajaj Finance Ltd. with a “reduce” rating and a price target of ₹110.

HSBC’s price target implies a potential downside of 27% from Thursday’s closing.

The brokerage said that the current valuations of Bajaj Housing Finance at 5.5 times financial year 2026 price-to-book and 44 times financial year 2026 price-to-earnings implies steep expectations of growth in Assets Under Management (AUM) and earnings as well.

For the September quarter, Bajaj Housing Finance’s AUM crossed the mark of ₹1 lakh crore, registering a growth of 26% from last year.

HSBC called Bajaj Housing Finance a “high quality franchise” with a diversified AUM mix, well managed liquidity and its Return on Assets (RoA).

However, the brokerage said that Bajaj Housing Finance’s RoA is at its peak and that its Earnings per Share (EPS) growth would slow due to slower growth in its AUM, pressure on its Net Interest Margins (NIMs) and normalised credit costs.

Apart from an earnings slowdown, HSBC sees two other threats to Bajaj Housing Finance’s valuations. Its current valuation is implying a 10% long-term growth and 17% Return on Equity (RoE), while HSBC is estimating the RoE at 14.6%. The second one being the large NBFC peers, with higher RoE, stable growth outlook and a steep valuatio discount are better alternatives, according to HSBC>

RoA compression though, can be mitigated by lower credit costs, faster operating leverage and minimum compression in its Net Interest Margin (NIMs) if the cost of funds moderate quickly, are some of the upside risks to HSBC’s estimates on Bajaj Housing Finance.

Shares of Bajaj Housing Finance are currently trading 0.5% higher at ₹151.3. HSBC’s price target, though implying a downside to shares, is still above its IPO price of ₹70.