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On Tuesday, HSBC analyst Abhishek Murarka adjusted the price target for Bajaj Housing Finance (BAJAJHFL:IN), bringing it down to INR90.00 from the previous INR110.00. Despite this change, the Reduce rating on the company's shares has been maintained. The revision follows Bajaj Housing Finance's reported profit after tax (PAT) growth of 25% year-over-year in the third quarter of fiscal year 2025, which was attributed to robust asset under management (AUM) growth and operational efficiencies.
The company's net interest margin (NIM) experienced a slight contraction of 10 basis points quarter-over-quarter. This occurred even as Bajaj Housing Finance witnessed accelerated growth in high-yielding segments, including developer finance and loans against property. Additionally, credit costs normalized to approximately 20 basis points of loans, which also led to a 10 basis point quarter-over-quarter compression in return on assets (RoAs).
HSBC anticipates that the return on assets (RoA) for Bajaj Housing Finance will face pressure in the future. This is expected due to potential margin compression and a further normalization of credit costs. There is also a projection of moderation in AUM growth, influenced by a slowdown in disbursement growth as detailed in the report titled "Steep expectations," dated October 4, 2024.
HSBC forecasts an AUM compound annual growth rate (CAGR) of 23%, an earnings per share (EPS) CAGR of 22%, and return on equity (RoEs) of 12-13% for the fiscal years 2025 to 2027. In light of these estimates, the current market valuation of Bajaj Housing Finance at 3.4 times book value per share (BVPS) and 28 times earnings per share (EPS) for fiscal year 2027 is considered by HSBC to be expensive.
The new target price of INR90 is based on 2.9 times the forecasted FY27 book value per share and 24 times the estimated FY27 earnings per share. This target implies an approximate 15% downside from the current levels. HSBC's stance remains cautious, maintaining the Reduce rating due to the expectation that earnings per share growth for Bajaj Housing Finance will continue to be challenged.
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