Bajaj Housing Finance Shares Sink 10% After HSBC's 'Reduce' Rating

Shares of Bajaj Housing Finance fell sharply today, dropping 10 per cent to a 52-week low of Rs 135.60 after global brokerage firm HSBC initiated coverage on the recently listed company with a 'reduce' rating. The report sets a target price of Rs 110, indicating a potential downside of 27 per cent.

HSBC's analysis points to a slowdown in earnings as a key factor influencing its bearish outlook. The report highlights that Bajaj Housing Finance's current valuation reflects an unrealistic long-term growth rate of 10 per cent and a return on equity (ROE) of 17 per cent, significantly higher than HSBC's estimated ROE of 14.6 per cent. The firm notes that large non-banking financial companies (NBFCs) with superior ROEs and more stable growth prospects present better investment alternatives at lower valuations.

The report elaborates that Bajaj Housing Finance’s valuation, currently pegged at 5.5 times FY26 estimated price-to-book (PB) ratio and 44 times FY26 estimated price-to-earnings (PE) ratio, suggests steep expectations for asset under management (AUM) and earnings growth. However, HSBC warns that the company's return on assets (ROA) is at a peak and that earnings per share (EPS) growth is likely to slow due to various factors, including reduced AUM growth and pressure on net interest margins (NIM).

HSBC predicts that while Bajaj Housing Finance's home loan segment is expected to grow at a compound annual growth rate (CAGR) of 30 per cent from FY21-24, this momentum may not continue. The brokerage forecasts a deceleration in AUM growth to around 26 per cent CAGR over FY24-27, with the report citing challenges in further accelerating growth in the housing loan market.