Buy Bajaj Housing Finance; target of Rs 125: ICICI Securities

Buy

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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