Ambit has initiated a ‘Sell’ rating on Bajaj Housing Finance with a target price of ₹86, representing a 39% potential downside. The valuation concerns arise from an implied ask rate of approximately 2x the industry growth, which Ambit believes is ambitious given the competitive dynamics within the prime home loan industry.
Key Highlights:
- Valuation Concerns: The current valuation stands at 5.2x FY26E book value (BV), which is at a 104% premium to its peers. This high valuation raises questions about the sustainability of such growth in a mature industry dominated by banks.
- Industry Dynamics: Prime home loans represent a mature market, and the high competition from established banks is expected to put pressure on loan growth and return on equity (RoE).
- Risk in Non-Housing Loans: While non-housing loans may contribute to growth and RoE, they come with higher risks, particularly during real estate downturns. Ambit cautions that this segment could face headwinds in the future.
- Growth Projections: The valuation builds on a 24%/23% compound annual growth rate (CAGR) for assets under management (AUM) and earnings per share (EPS), along with an average RoE of 16% over FY24-34. These projections suggest that Bajaj Housing Finance will replicate the success of its parent company, Bajaj Finance, which is a high benchmark to meet.
Industry Challenges
Bajaj Housing Finance operates in an environment where prime home loans offer moderate growth. The company faces stiff competition from banks, which are well-established in the housing loan segment. The competitive dynamics in this space may weigh on loan growth and RoE, making it difficult for the company to meet high growth expectations.
TOPICS:
Bajaj Housing Finance