Bajaj Housing Finance: Strong Business, Weak Stock

Bajaj Housing Finance offers a clear lesson: a strong business can still give poor stock returns when its valuation is too high for investors. The stock has fallen about 55% from its peak, even as the lender continues to expand. In Q1 FY27, profit after tax rose 23% year-on-year to ₹715.28 crore, while total income increased 16% to ₹1,175 crore. Net interest income grew 9% to ₹968 crore. Quarterly disbursements reached a record ₹19,509 crore, up 33%, and assets under management rose 24% to ₹1,49,624 crore. Return on average equity improved to 12.5% from 11.6% a year earlier. Growth was broad-based. Home loans rose 20% to ₹80,865 crore. Lease rental discounting grew 41% to ₹34,604 crore, while developer finance increased 19% to ₹17,002 crore. Loans against property also grew 22%. Asset quality remains a major positive. Gross NPA was 0.29% and net NPA 0.12%. Provisions fell 58% to ₹16 crore, while the capital adequacy ratio stood at 21.59%. Operating efficiency improved, with expenses falling to 19.6% of net total income from 21.2%. The main risk is profitability. Net interest margin slipped to 3.7% from 3.8% in Q4 FY26. Management expects another 20–25 basis-point compression in FY27 as portfolio yields normalise. Competition from banks, funding costs and a lower-yielding loan mix may limit earnings growth. For shareholders, the fall is painful because it has reduced wealth and shows that the market is no longer willing to pay an extreme premium. However, it could improve long-term value if earnings compound and the valuation becomes reasonable. Investors should track asset quality, margins, return on equity and sustainable growth, not the 55% fall alone. The business remains strong, but the stock becomes attractive only when its price provides a margin of safety.