Ambit begins coverage on Bajaj Housing with 'Sell' rating

Brokerage firm Ambit has initiated a 'Sell' rating on Bajaj Housing Finance, setting a target price of Rs 85, which indicates a 39% downside from the previous closing price of Rs 139.90 per share. This move comes amid concerns about the company's valuation and market dynamics.

In its report, Ambit highlighted that the current valuation implies an ask rate of approximately 2x the industry's growth rate. The report underscores that the prime home loans segment is a mature industry, heavily dominated by established banks. As such, the competitive dynamics within this space are expected to weigh on loan growth and return on equity (RoE).

While the firm noted that non-housing loans could potentially contribute positively to growth and RoE, they also entail higher risks that may become apparent during downturns in the real estate market.

Ambit's report points out that Bajaj Housing Finance's current valuation stands at 5.2x FY26E book value, which represents a 104% premium over its peers. The brokerage has factored in ambitious expectations of 24% and 23% compound annual growth rates (CAGR) for assets under management (AUM) and earnings per share (EPS), respectively, alongside a 16% average RoE over the period from FY24 to FY34. This projection implies an aspiration to replicate the success of its parent company, Bajaj Finance.

However, Ambit cautioned that the prime home loans sector is characterized by moderate growth potential and faces high competition from traditional banks.

Despite this, in Wednesday's trading, the stock surged up to 2.5%, reaching Rs 143.4 on the BSE.

Bajaj Housing Finance has emerged as one of the year's most successful IPO listings, debuting with a premium of over 100% compared to its IPO price of Rs 70. On its listing day, the stock soared 135%, hitting a high of Rs 188.5.

Earlier in October, Bajaj Housing Finance reported that its Assets Under Management (AUM) surpassed Rs 1 lakh crore during the quarter, reaching Rs 1,02,550 crore—a 26% increase compared to Rs 81,215 crore in the same quarter last year.

Continuing a trend seen in the previous two quarters, the AUM grew by Rs 5,480 crore during the September quarter. The company’s loan assets stood at nearly Rs 89,860 crore at the end of the September quarter, up from Rs 70,954 crore the previous year.

The company also reported a 14% year-on-year growth in new loans booked, with 9.69 million loans recorded in Q2FY25, compared to 8.53 million in Q2FY24.

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