Growth drivers, powerful strengths, key risks, and valuation of Bajaj Housing Finance to decide if this smart housing finance stock deserves a buy now!
Company Overview and Background Bajaj Housing Finance
Bajaj Housing Finance belongs to the Bajaj group, which is a well-reputed group in various industries, especially in the lending business. In housing finance companies, this is the second-largest company in India. The other group company, which is Bajaj Finance, does several types of loans like personal loans, consumer loans, EMI financing, etc. Whereas Bajaj Housing Finance is specifically focused on housing loans.
Table of Contents
History, Growth, and Branch Network
His company was started in the financial year 18, and since then, in the last 8 years, the company has shown massive growth, and they have developed a network of 226 branches across 182 locations in India.
Business Model Explained in Simple Terms
Explain the business model of this company in very simple words.
NBFC-HFC Structure and Regulation
Bajaj Housing Finance is an NBFC registered as a housing finance company. So if any NBFC specifically wants to focus on the housing finance business, then they get registered as an HFC. Among the HFC’s, there is an apex institution called the National Housing Bank. This institution supports all the HFC’s in India. Earlier, this institution also used to regulate these HFCs. But now the regulation of the HFCs comes under the RBI, like any other NBFCs in India.
Borrowing and Lending Mechanism
What does the Bajaj Housing Finance do? It borrows money from banks from National Housing Bank, raises money through bonds and various sources, and lends this money to people who are in need of loans, specifically for housing loans.
So if someone wants to construct his own house or wants to buy a readymade house, wants to pledge his residential or commercial property and borrow money against it, Making Finance is willing to lend to such people. So all these are secured loans with a very low risk of NPS.
How the Company Earns Profit (Interest Spread)
Usually, the borrowing of money through different sources that we discussed is at a lower interest rate compared to the lending rates, and the difference between these two rates, which is the spread, is the profit that this company earns.
Loan Portfolio and Product Mix
There are four types of loans that this company gives.
Home Loans (54% of Loan Book)
The first is the general home loans, which we are all aware of. If someone wants to buy a house or wants to construct a house, he can approach Bajaj Housing Finance for a loan, pay the upfront minimum 10 20% of the house on his own, and the remaining 80 90% will be financed by Bajash Housing Finance, and gradually, as and when the house gets constructed, the EMIs can be paid back to Bajaj Housing Finance.
If at all the buyer defaults on the payment, the property that is being bought by taking this loan is pledged against the loan. So these home loans account for about 54% of this company’s loan book.
Lease Rental Discounting – LRD (22%)
The second major share of the portfolio comes from lease rental discounting, which is 22%. Now, what is lease rental discounting? Let’s say somebody has a commercial property which he has given on lease to reputed tenants like some other banks or corporates. There is an assurance that he’ll be receiving regular lease rent for a very long period of time for many years.
Now, against this lease rent, if he wants some loan upfront, Bajaj Housing Finance is willing to give them, taking the cash flow of that particular lease rent as a security, and sometimes even the property as a security. So the borrower gets upfront money, and the regular lease rent goes to Bajaj Housing Finance. These kinds of loans give higher profitability to Bajaj Housing Finance, but at the same time, the risk profile is slightly higher than that of the regular housing loans.
Loan Against Property – LAP (10.8%)
The third one is a loan against property. This is when the borrower does not buy a property. He already has a property, which is a residential or commercial property. He pledges his property against the loan and takes a loan from Bajaj Housing Finance. This constitutes about 10.8% of the portfolio of this company.
Developer Financing (11.5%)
The fourth one is the developer financing. Now this is for real estate companies or construction companies that are constructing or developing projects. They approached Bajaj Housing Finance for a loan, and using this loan, they constructed that project. So the property, which they are constructing, including that land and building, is pledged against this loan as security, and in this also,
Bajaj Housing Finance gets higher interest rates compared to the regular housing loan, and comparatively, they also have a slightly higher risk. This constitutes about 11.5% of the portfolio of this company.
Industry Growth and Market Outlook
This industry has been steadily growing over the last few years at 13.4% CAGR, and going forward, this speed is going to increase from 14 to 16% CAGR up to the financial year 28. All this is subject to several changes that are happening within India and globally because the world is very dynamic these days.
Competitive Landscape Bajaj Housing Finance
If you look at the competition, this is a very competitive space. Although this company has a good brand, there are still many other big and small companies in both the listed and unlisted spaces competing against each other to give such loans. So the borrower, although he looks for a brand, is very sensitive to the rate at which he’s getting the loan.
AUM Growth Comparison with Peers
Compared to the next three players in this industry, Bajaj Housing Finance has been growing its AUM at a much faster pace over the last 5 years.
You see, Bajaj’s growth is 29% CAGR of its AUM in the last 5 years compared to the other players. The first one is LIC Housing Finance, growing at 8%, and the next two players, which are smaller thanBajaj Housing Finance, are at 4% and 14%.
Key Competitors in Housing Finance
Some of the listed companies are LIC Housing Finance, PNB Housing Finance, Apt Value Housing Finance, and AAS Finance. So there are several companies in this space.
Competitive Advantages of Bajaj Housing Finance
Then what is the competitive edge of this company? If there is so much competition, this is not a very high-motivated business.
AAA Credit Rating and Low Cost of Borrowing
But still, the company is able to borrow money at very competitive rates as it has an AAA rating, and it is able to compete against the other NBFCs and banks in terms of the lending rate.
Brand Value, Digital Processes, and Asset Quality
The brand value is good because everybody in India recognizes this brand. They have developed a good network with the developers. So whenever a new property is being constructed, if people buying that property need loans, Bajaj is definitely present at that place. Bajaj Housing Finance The asset quality, if you look at it, which we’ll discuss in the coming slides, is very good in this company, and the processing is digital and very fast for the borrowers.
Growth Strategy and Management Guidance
The growth plans, the industry, as we discussed, is expected to grow between 14 to 16% Kagar in the next few years. This company has been growing and aims to grow faster than the industry for the next few years.
AUM Growth Targets and Market Share Expansion
So you can expect a growth of around 20% kagger in the AUM of this company for the next few years. They want to increase the home loan market share from 1.7% to 5% gradually over the next few years.
Focus on Affordable and Non-Home Loan Segments
A specific segment of the community, called affordable or near prime housing, which is a comparatively smaller ticket size of loans in the housing sector.
Right now, the company is disbursing around 400 to 425 crores per month in this particular type of loan. They want to increase it to around 600 crores in the next 12 months. They will focus on growing the non-home loan segments as well. We discussed four segments, if you remember, and they will not compromise on the quality of lending in spite of growing this fast.
Profitability Targets (ROA & ROE)
ROA, they plan to maintain between the range of 2% to 2.2%, which they have been successfully doing, and ROE between 13 to 15%. And with respect to their physical presence, they will continue to expand the number of branches.
Key Risks and Challenges
Coming to the risks involved, this is a highly competitive field. People have cutthroat competition for just 10 to 20 basis points of the interest rates. So this will create pressure on the margins of this company every year. Then, the non-occupying loan segments, which they are focusing on, come with a slightly higher risk.
Right now, the company is at its best in terms of asset quality in its history. The management believes that there may be a slightly higher risk going forward in terms of asset quality as Bajaj Housing Finance the business matures. Asset liability mismatch risk is always there in this business unless the management is very disciplined to manage it properly, and real estate, as you know, is a cyclical business.
If this sector remains in the down cycle for a very long time, then these businesses will be under pressure. All these NBFCs are banks that are constantly regulated by RBI and other bodies, and every decision of RBI will impact the business of this company.
Financial Performance Analysis
Coming to the Bajaj Housing Finance, if you look at the operating expenses to the net total income, the lower this ratio is, shows that greater the profitability of the company and better operating leverage.
Operating Efficiency (OPEX to NII)
So, comparatively, if you see from the Financial year 18, this has fallen. When the company started, it was at 74%, and now it is at 19.7%. So, there is a gradual decline over several years, and they are improving the efficiency with which they are managing the cost and increasing the profitability of the company.
Return on Assets (ROA) Trend
ROA is another metric we usually track, which is written on assets. This is calculated by taking profit after tax in the numerator and average assets of the company during the year in the denominator. Bajaj Housing Finance The higher this ratio is, the better for this company. Bajaj Housing Finance This has improved from 0.6 at the inception to about 2.3%, which is considered to be healthy in this industry in recent years.
Asset Quality – GNPA
GNPA, which shows the quality of lending and the quality of assets. This should ideally be as low as possible for any lending institution. At one point in time, this was as high as 0.35%, and now it is at 0.27%, which is considered very healthy in this industry.
AUM and PAT Growth
Total loan book outstanding, which is the AUM of the business. This is the metric that shows the size of the business and growth in the business. Bajaj Housing Finance So AUM is the sum of the entire loan book or total loans given by this institution. This has grown from about 3570 crores at inception to around 1 lakh 40,000 crores now.
So you can see a growth of nearly 29% CAGR in the last 5 years, which is very impressive. Pat’s growth in the last 5 years has been 41% CAGR, which has grown from about 453 crores in the financial year 21 to almost 2,500 crores in the recent year.
Asset Liability Management (ALM)
Now, what is ALM? Asset liability management. So this institution gives loans for longer periods of time for constructing houses, improving houses, and giving loans against properties. Bajaj Housing Finance So when they are giving loans for longer tenures, it is also important that the institution borrows money for longer tenures as well.
So they have to match the assets and liabilities timing of these assets and liabilities properly, otherwise there’ll be an issue in the company. Under assets, the company gives the four types of loans that we discussed, and in the liabilities, as we discussed, Bajaj Housing Finance the company borrows money through bonds, through banks, through the National Housing Bank Bajaj Housing Finance, and other sources.
Borrowing Mix and Funding Sources
So the borrowing mix of the company right now is 43.9% from NCDS, which are non-convertible debentures, which are similar to bonds. Around 40% is from other banks and institutions. Around 10% is from the National Housing Bank and 5.3% from commercial paper, which is generally short-term loans.
Recent Quarterly and Annual Performance
Looking at the recent Bajaj Housing Finance snapshot, if you look at AUM Financial year 25 compared to Financial year 26 has grown at 23%, which continues to remain impressive. Q4 financial year 26 has grown compared to last year at 23%, which is again good.
Revenue, Profitability, and Margin Trends
Net interest income has grown at 25% year-on-year, but for the last quarter, we see only 15% growth. This is where we need to focus on going forward because we see some pressure on the margins.
Bajaj Housing Finance If AUM is growing faster than the net interest income, the pre-provisioning operating profit this quarter has grown 23%, and this year, that is FI26 has grown at 25%.
which continues to be good, and profit after tax has grown at 14% for this quarter, and for this year, that is, Financial year 2026 has grown at 18%. So the top line or the AU growth has been slightly faster than the bottom line or the interest. So this shows there is slight pressure on the profitability of the company.
IPO Guidance vs Actual Performance
Now, there were certain metrics and ranges that the company had spoken about at the time of IPO. The company has managed to stay in line with or beat all of those metrics.
The AUM growth they aimed between 21 and 23. They achieved 23%. OPEX to NTI, which we discussed the operating expenses ratio 22 to 20, 20 to 21%, they had estimated they had done better. They have reduced it to 19.7%.
GNPA from 35 basis points to 40, they had estimated that they had achieved this at 27 basis points, which is a beat credit cost of 15 to 20 basis points. They have achieved 17%, which is within line return on assets, 2% to 2.2 2 they have achieved 2.3%, which is again a beat.
Bajaj Housing Finance Return on equity 11 to 12%, they had estimated they had achieved 12.1%, which is again a beat. So, more or less, the financials look good. A slight pressure on the profitability has to be washed away going forward.
Key Concerns from Recent Results
So if you understand the recent quarter results and the management commentary n has declined from 4% to 3.8% as we discussed spread has declined from 1.8% to 1.7%. Spread is the difference between the average borrowing rate and the average lending rate of this company. So these are some metrics that you have to focus on going forward. Overall portfolio attrition is also slightly on the higher side at 20%.
The smaller ticket size loans, which the company is lending or trying to increase, will be slightly more risky compared to the existing loans. RO is good but slightly modest, and there are related party transactions with other group companies like Bajaj Finance.
Normally, we will be more careful in these transactions with other companies, but because this is a reputable group, this does not seem to be a big red flag for us.
Valuation Analysis and Stock Price Journey
Coming to the valuations, which is the last part and the most interesting one. This company came out with an IPO at a price of rupees 70. The stock listed at a hype at rupes 150 rupees at that point in time made a high of around 188 and made a low sharply at 72, which was a very deep correction, and right now it is trading at around 84 rupees.
So those who bought after the listing are having a very tough time with the stock. Right now, it is trading at a price to book of around 3.11 times, which is not very cheap.
Investment View – Hold or Buy?
So if you are an existing shareholder of this company, you can continue to hold if you are not exited at our top because there is visibility of growth in the company for the next few years. But if you’re looking at a fresh entry in this company, the valuations right now are okay.
But compared to its peers, Bajaj Housing Finance they are still on the higher side. So the stock may remain in a time correction for some more time till the valuations get further normalized.
So one approach for you would be to leave the stock for a few more months and consider accumulating it once the valuations get further cheap. The second approach would be to gradually accumulate the stock. As you see on the charts, it has started creating a bottom formation.
Bajaj Housing Finance So maybe you can take a tracking position and gradually accumulate, keeping in mind that the company does not face pressure on the profitability and margins going forward, and the AUM growth continues.
Frequently Asked Questions (FAQs)
Q1. Is Bajaj Housing Finance safe for long-term investment?
Bajaj Housing Finance is backed by the Bajaj Group and has strong asset quality. Long-term safety depends on margin stability, competition, and real estate cycle conditions.
Q2. Why did Bajaj Housing Finance stock fall after listing?
The stock corrected after listing due to high IPO valuations, overall market volatility, and margin pressure concerns despite strong business growth.
Q3. What is the future growth outlook of Bajaj Housing Finance?
The company targets around 20% AUM growth, supported by housing demand, affordable housing focus, and expansion in non-home loan segments.
Q4. How does Bajaj Housing Finance earn money?
It borrows funds at lower interest rates and lends them as housing and property loans at higher rates. The difference, called interest spread, is its main income source.
Q5. Is Bajaj Housing Finance better than LIC Housing Finance?
Bajaj Housing Finance is growing faster with better operational efficiency, while LIC Housing Finance is more stable but has slower growth. Choice depends on risk appetite.
Q6. What are the main risks in the Bajaj Housing Finance business?
Key risks include intense competition, margin compression, higher risk in non-home loans, asset-liability mismatch, and regulatory changes.
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