Why did Motilal Oswal start coverage on Bajaj Housing Finance? Check here

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Motilal Oswal has initiated coverage on Bajaj Housing Finance (BHFL) with a ‘Neutral’ rating and a target price of ₹120, influenced by the company’s strong growth trajectory, robust asset quality, and diversified mortgage portfolio, but cautions about premium valuations and competitive pressures. 

 

On the bourses, Bajaj Housing Finance shares rose as much as 0.75 per cent to an intraday high of ₹112.95 per share. Around 9:50 AM, Bajaj Housing Finance share was trading 0.54 per cent higher at ₹112.70. In comparison, BSE Sensex was trading 0.05 per cent higher at 81,469.91 levels.

 

In its September 11 report, titled “Beyond brick and mortar: Playing the major league,” Motilal Oswal said BHFL is “well-positioned to drive market-leading growth with pristine asset quality.”

 

BHFL has emerged as the fastest-growing and second-largest housing finance company (HFC) in India, with a five-year AUM CAGR of ~29 per cent over FY20-FY25 and an AUM of ₹1.2 trillion as of June 2025. The company is the most diversified HFC in the country, offering a wide range of mortgage products for individual homebuyers and large developers. BHFL has also entered affordable housing, strengthening its presence across the housing finance ecosystem.

 

“BHFL maintains one of the strongest asset quality profiles among its peers, driven by large, prime-ticket loans, stringent underwriting, and prudent risk management. GNPA and NNPA have remained between 0.30-0.35 per cent and 0.1-0.2 per cent, respectively, over five years, highlighting portfolio resilience,” the brokerage said.   

 

Backed by AAA/stable credit ratings from CRISIL and India Ratings, BHFL is seen as the strongest franchise in the HFC sector, supported by robust AUM growth, Bajaj Group parentage, a focused low-risk business model, a diversified AUM mix, and scalable tech-driven distribution, analysts believe. 

 

Near-term growth drivers include increased construction finance share in the AUM mix and gradual scaling up of affordable housing, mitigating NIM contraction in a declining interest rate cycle.

 

Motilal Oswal analysts expect AUM growth to moderate over the medium term due to a larger balance sheet and rising competition from banks. RoE is projected to remain moderate at ~12-14 per cent, as intense competition and relatively low yields in prime home loans may result in subpar stock returns despite strong execution capabilities.

 

Currently, BHFL trades at 3.6x P/BV and ~29x FY27E P/E, about 60 per cent above its IPO price. Motilal Oswal models AUM and PAT CAGR of ~22 per cent each over FY25-28E, with RoA/RoE at 2.3 per cent/14 per cent in FY28E. The company has carved a niche by focusing on affluent salaried borrowers with high credit scores (~77 per cent of home loan customers have CIBIL >750), and ~84 per cent of loans go to salaried individuals, creating a predictable, low-risk loan book.

 

On operations, BHFL has a “best-in-class framework for sourcing, underwriting, and collections,” enabling superior asset quality while sustaining robust AUM growth. Its omnichannel sourcing strategy taps Bajaj Finserv’s digital channels for 7-10 per cent of home loans, reducing acquisition costs and improving spreads. Transition to in-house originations has further lowered costs, improved retention, and enhanced credit quality.

 

While spreads contracted ~90 basis points over the past three years, NIM is expected to remain ~3.3 per cent in FY26-27 as lower lending yields are offset by reduced borrowing costs. BHFL operates a fully digital loan lifecycle and is expanding its hub-and-spoke distribution model across 216 branches. Operating leverage is expected to improve, with the cost-to-income ratio declining from ~21 per cent in FY25 to ~16.5 per cent by FY28.

 

Asset quality remains a standout. GS3 has remained ~0.2-0.3 per cent over three years, outperforming peers with GNPA between ~1.5-8.2 per cent. Motilal Oswal expects credit costs of ~15-16 basis points over FY26-FY28, with GNPA guided at 40-60 basis points.

 

While BHFL offers robust growth, strong parentage, and superior asset quality, valuations are demanding. “We initiate coverage on BHFL with a Neutral rating and a TP of ₹120, premised on 3.6x Sep’27E P/BV,” analysts at Motilal Oswal said.