Bajaj Housing Finance AUM growth stays strong despite FY27 NIM compression

Investment View and Valuation

Motilal Oswal Financial Services retains a Neutral rating on Bajaj Housing Finance with a target price of Rs 95, compared with the current market price of Rs 88. The broker views the June 2026 quarter as mixed: broad-based growth and benign asset quality were positive, but net interest margin compression is expected to continue as high-yielding legacy loans run off and are replaced by lower-yielding new originations.

Motilal Oswal believes Bajaj Housing Finance can sustain strong disbursement and assets under management growth, supported by scale and a focus on higher-yielding segments. However, it considers the valuation to already reflect much of the company’s medium-term growth and profitability potential. The Rs 95 target price is based on 2.7 times FY28E book value per share. The stock was trading at 2.9 times FY27E book value, which the broker considers sufficient to capture expected growth and profitability.

1QFY27 Financial Performance

Bajaj Housing Finance reported 1QFY27 profit after tax of about Rs 715 crore, up 23% year on year and approximately 5% above Motilal Oswal’s estimate. The beat was primarily driven by sharply lower credit costs. Net interest income rose 9% year on year to about Rs 968 crore, broadly in line with the broker’s estimate.

Credit costs were equivalent to an annualised 5 basis points, compared with 16 basis points in the prior year. Other income grew 64% year on year to about Rs 207 crore, around 11% above estimate, while net total income rose approximately 16% to Rs 1,175 crore. Operating expenses increased 7% to Rs 230 crore and pre-provision operating profit rose 18% to Rs 945 crore, both broadly in line with estimates.

Asset Quality and Credit Costs

Management said the unusually low 1QFY27 credit cost reflected direct assignments of about Rs 2,300 crore, which released Stage 1 provisions. It also reflected the absence of accelerated provisioning that had occurred in 4QFY26 amid macroeconomic and geopolitical uncertainty.

Asset quality remained stable, with gross Stage 3 and net Stage 3 at 0.3% and 0.1%, respectively. Provision coverage declined about 125 basis points sequentially to 58.5%. Management said LAP gross non-performing assets remained within the historical 50–70 basis point range and saw no material stress across cohorts, geographies or customer segments, including salaried IT borrowers.

Developer-finance GNPA was 12 basis points after one account moved from Stage 2 to Stage 3. Management said the account had already been provisioned at a materially higher level, limiting the need for incremental provisioning.

AUM and Disbursement Growth

Assets under management grew 24% year on year to about Rs 1,49,600 crore at June 2026, while 1QFY27 disbursements increased 33% to approximately Rs 19,500 crore. Management guided for FY27 AUM growth of 21–23%, whereas Motilal Oswal estimates growth of around 25%.

The broker expects Bajaj Housing Finance to deliver FY26–FY28E AUM and PAT compound annual growth rates of about 24% and 20%, respectively. It estimates FY28E return on assets and return on equity at approximately 2.1% and 13.5%, respectively.

Margin Outlook

Reported yield was broadly stable sequentially at about 8.9%, while cost of funds declined approximately 7 basis points to 7.2%. Spreads therefore remained stable at 1.7%. However, reported NIM fell about 14 basis points sequentially to 3.7%.

Management expects FY27 NIM to decline 20–25 basis points, including a further 6–10 basis points of compression during the year. Cost of funds is expected to remain broadly stable with a modest downward bias.

Sambhav Housing Expansion

Sambhav Housing’s monthly disbursement run rate increased to Rs 450–465 crore from Rs 410–425 crore in 4QFY26. Management is targeting more than Rs 600 crore of monthly disbursements within nine months.

Affordable housing is expected to comprise 33–36% of Sambhav Housing’s disbursements, with the balance coming from near-prime housing.

Earnings Estimate Changes

Motilal Oswal increased its FY27E EPS estimate by 3%, reflecting higher other income and lower credit costs. However, it lowered its FY28E EPS estimate by 1%. The broker continues to view the stock’s valuation as adequately factoring in the expected growth and profitability outlook, supporting its Neutral recommendation.