Phillip Capital India Research initiated coverage on Bajaj Housing Finance Ltd. with a 'buy' rating and target price of Rs 210 per share, implying a potential upside of 27% from the share's closing price on Monday.
BHFL stands out due to its focus on home loans of approximately Rs 50 lalh, which covers around 65% of home loan demand in India. It is also concentrating on lease rental discounting, the brokerage said in a report.
The company's balance sheet is expected to exceed Rs 2 lakh crore. In the short term, due to low credit costs and a focus on a safe balance sheet, BHFL is expected to achieve a return on assets of more than 2% and a return on equity of over 12%, Phillip Capital said.
Phillip Capital has considered three scenarios for valuation and applied a 15% discount for holding company status to be cautious, even though current tax rules don't require this discount. It assigned a 50% weight to the base scenario, 40% to the bear scenario, and 10% to the bull scenario.
BHFL's average home loan customers earn about Rs 14 lakh, giving them strong negotiating power, the brokerage said, boosting its returns by offering additional top-up home loans.
Around 40% of BHFL's home loans are given to existing Bajaj Finance customers, and 90% go to salaried individuals, helping to lower costs and improve profits, it said.
Most of BHFL's property loans are for self-occupied homes, with a loan-to-value ratio of about 45%, majorly for existing customers.
As BHFL expands, its assets per branch are nearing the levels of LIC Housing Finance, and its assets per employee equals Can Fin Homes, it said. BHFL also benefits from lower borrowing costs and better returns compared to its peers.
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