Bajaj housing finance: Brokerage firm HSBC has released a report on Bajaj Finance Limited's recently listed housing finance subsidiary. According to the report, the company has initiated coverage on Bajaj Housing Finance Limited, with a "low" rating and a target price of 110. HSBC's target price indicates a potential downside of 27% from Thursday's close.

The brokerage said that Bajaj Housing Finance's current valuation is 5.5 times its FY26 price-to-book value and 44 times its FY26 price-to-earnings ratio, which indicates growth in assets under management (AUM) and earnings. For the September quarter, Bajaj Housing Finance's AUM crossed the Rs 1 lakh crore mark, growing 26% from last year.

What else in the report? HSBC called Bajaj Housing Finance a "high quality franchise" with a diversified AUM mix, well-managed liquidity and its return on assets (RoA). However, the brokerage said that Bajaj Housing Finance's RoA has peaked and its earnings per share (EPS) growth is slow due to slow growth in its AUM, pressure on its net interest margin (NIM) and normalized credit costs. Apart from a slowdown in earnings, HSBC sees two other threats to Bajaj Housing Finance's valuation. Its current valuation implies a 10% long-term growth and a 17% return on equity (RoE), while HSBC estimates a RoE of 14.6%. According to HSBC, the other alternatives are large NBFCs, which have higher RoE, stable growth prospects and a steep discount to valuations. While the reduction in RoA could be mitigated by low credit cost, accelerating operational profits and a minimal reduction in its net interest margin (NIM), there are some risks to HSBC's estimates on Bajaj Housing Finance if the cost of funds comes down sharply. Shares of Bajaj Housing Finance are currently trading 0.30% higher at ₹150.90. HSBC's price target, though indicating a downside bias in the stock, is still above its IPO price of ₹70.