Updated on: 2026-02-02 As of: 2026-02-02 Latest price: Not provided in search results; check NSE/BSE for current price Market cap: Approximately Rs 80,000-90,000 crore (estimated based on equity capital of Rs 8,329 crore as of Sep 2025) Latest earnings period: H1 FY26 (April-September 2025); Q2 FY26 results announced in October 2025 Key sources: https://www.niftytrader.in/markets/bajaj-housing-finance-reports-strong-growth-in-fy25-posts-a-25-increase-in-net-profit/; https://www.icicidirect.com/research/equity/rapid-results/bajaj-housing-finance-ltd; https://www.bajajhousingfinance.in/documents/37350/6426008/Bajaj+Housing+Finance+Q2+FY26+Investor+Presentation.pdf

1. Event: Bajaj Housing Finance announced Q2 FY26 (July-September 2025) results with 18% PAT growth to Rs 643 crore and AUM growth of 24% YoY to Rs 1,26,749 crore. The company maintained net interest margin (NIM) at 4.0% despite a declining interest rate environment.
2. Date: October 2025 (Q2 FY26 results announcement)
3. Why the Market Reacted: The results demonstrated resilience in a competitive, rate-cutting cycle. AUM growth outpaced industry averages, and asset quality remained pristine (Gross NPA 0.26%, Net NPA 0.12%). Investors focused on whether BHFL could sustain growth without margin compression.
4. Why This Is Not Just News: Q2 results are a data point, not a thesis. The critical question is whether BHFL's 20%+ AUM growth rate can persist as:
5. the affordable housing market saturates in metro areas,
6. RBI rate cuts accelerate (pushing NIMs lower),
7. competition from banks and fintechs intensifies, and
8. loan loss provisions rise as the credit cycle matures. This article examines the sustainability of growth and margin assumptions embedded in current valuations.

BHFL's 24% AUM growth and 18% PAT growth mask deteriorating unit economics (margin compression) and rising competitive intensity, creating a valuation trap unless the company can demonstrate sustainable profitability per rupee of assets despite declining interest rates.

1. Bajaj Housing Finance operates a traditional housing finance model: originate mortgages, hold them on balance sheet, fund via deposits and borrowings, and earn the spread between loan yield and cost of funds. In FY25, net interest income (NII) of Rs 3,007 crore represented 31% of total income, with fee income and other gains making up the remainder.[1] The company targets affordable housing (loans typically Rs 20-75 lakh), which offers higher yields (8-9% gross) than prime segment loans but also higher default risk. BHFL funds 54% of its portfolio via money market instruments (short-term, rate-sensitive), 37% via banks, and 9% via National Housing Bank.[4] This funding mix creates duration and liquidity risk: if short-term rates rise or liquidity tightens, BHFL's cost of funds could spike, compressing the spread. The company's growth strategy relies on:
2. increasing branch network and loan officer productivity,
3. maintaining market share in affordable housing, and
4. cross-selling insurance and other products. However, the core profit driver remains the NII margin, which has compressed from 4.1% (Q1 FY26) to 4.0% (Q2 FY26) despite a benign rate environment.[4] This suggests that competitive pricing pressure is already eroding spreads. Unless BHFL can reduce cost of deposits or increase loan pricing power, margin expansion is unlikely, making 20%+ PAT growth unsustainable without significant cost-cutting or asset growth at lower profitability.

BHFL's headline growth metrics (18-24% YoY) mask two critical deteriorations: 1. Net Interest Margin compression of 10 basis points quarter-on-quarter (Q1 to Q2 FY26), suggesting competitive pricing pressure is already eroding spreads despite benign rates.[4] 2. PAT margin compression of 220 basis points YoY (Q2 FY25 to Q2 FY26), driven by higher loan loss provisions (Rs 50 crore in Q2 FY26 vs Rs 5 crore in Q2 FY25, including management overlay release).[3] While AUM growth of 24% appears strong, it is growing faster than profitability per unit of assets. The company is also maintaining higher provisions (loan losses of Rs 50 crore in Q2 FY26), signaling management's expectation of rising credit stress. If NIM continues to compress and provisions rise, PAT growth will decelerate sharply despite AUM growth.

The market appears to be extrapolating BHFL's recent 20-25% PAT growth rates indefinitely, assuming that AUM growth will automatically translate to profitability growth. However, several hidden risks are being underestimated. First, the company's NIM compression of 10 basis points in a single quarter (Q1 to Q2 FY26) is a warning signal that competitive pricing is intensifying faster than management anticipated.[4] If RBI cuts rates by 200+ basis points over the next 18 months (a realistic scenario given inflation trends), BHFL will face severe margin pressure: loan yields will fall faster than deposit costs, and the company's 54% reliance on money market funding (short-term, rate-sensitive) means cost of funds could remain sticky. Second, the loan loss provisions jumped from Rs 5 crore to Rs 50 crore in Q2 FY26, a 10x increase.[3] While management attributed this partly to a management overlay release, the underlying credit stress is rising. BHFL's portfolio is still young (the company is growing at 24% YoY), so vintage-wise NPAs have not yet seasoned. If housing demand slows or unemployment rises, NPA trajectory could deteriorate rapidly, forcing higher provisions and lower profitability. Third, BHFL's competitive moat is weak. Banks are aggressively entering affordable housing with superior balance-sheet strength, lower cost of capital (banks fund at 3-4%, BHFL at 5-6%), and brand advantage. Unless BHFL can differentiate on underwriting speed or customer service, market share will erode as banks price loans 50-100 basis points cheaper. Fourth, the company's return on equity (ROE) has been stable at 13-14%, which is acceptable but not exceptional for a financial services company in a high-growth market.[5] If margins compress and AUM growth slows (both likely), ROE will fall below 10%, making the stock less attractive. Finally, the market may be underestimating regulatory risk: RBI has been tightening housing finance regulations (e.g., LTV caps, underwriting standards), which could slow loan origination and force BHFL to accept higher credit risk to maintain growth targets.

The market is pricing BHFL at approximately 18-20x FY26E earnings and 2.5-2.8x book value, assuming 15-18% PAT growth in FY26 and 12-15% in FY27.[5] These growth assumptions are contingent on: 1. NIM stabilizing at 4.0% or higher (unlikely if rates fall 200+ bps), 2. AUM growth remaining at 20%+ (possible but dependent on market share gains vs. banks), and 3. credit costs remaining benign (risky given provision increases). If NIM compresses to 3.7-3.8% and AUM growth slows to 15%, FY26 PAT could be 10-12% lower than consensus (Rs 2,300-2,400 crore instead of Rs 2,500-2,600 crore), pushing P/E to 21-22x and P/B to 2.8-3.0x. Conversely, if BHFL executes flawlessly (maintains 4.0% NIM, grows AUM at 22%, and keeps NPAs below 0.3%), the stock could justify 19-20x P/E. The valuation offers limited margin of safety given execution risks.

The Bull Case assumes BHFL maintains pricing power and market share despite RBI rate cuts and bank competition. This is possible if the company can differentiate on underwriting speed or build a sticky customer base, but execution risk is high. The Base Case assumes moderate margin compression (10-20 bps) and AUM growth deceleration as competition intensifies. This is the most likely outcome given current trends. The Bear Case assumes a credit cycle downturn or aggressive bank pricing that forces BHFL to accept lower margins and slower growth. While less likely in the near term, this scenario becomes more probable if housing demand slows or unemployment rises. The weighted average FY26 PAT estimate is Rs 2,450 crore (50% base + 25% bull + 25% bear), implying 13% growth from FY25 (Rs 2,163 crore), significantly lower than recent 18-25% growth rates.

• Net Interest Margin compression below 3.7% in two consecutive quarters, signaling structural loss of pricing power and forcing a downward revision of long-term profitability assumptions.
• Gross NPA rising above 0.5% or Net NPA above 0.25%, indicating that the credit cycle has turned and provisions will rise materially, compressing PAT growth to single digits.
• Market share loss to banks: if BHFL's loan disbursement rank falls below 3rd position, it signals that bank competition is winning and BHFL's growth will decelerate sharply.
• RBI tightening housing finance regulations (e.g., stricter LTV caps, higher risk weights) that force BHFL to reduce loan origination or accept higher credit risk, eroding the business model.
• Deposit outflows or funding stress: if BHFL's borrowing costs rise faster than loan yields (e.g., due to liquidity tightening), NIM will compress rapidly and the company may need to raise equity at a dilutive price.
• Dividend cut or suspension, signaling management's loss of confidence in earnings sustainability or need to preserve capital for loan growth.

BHFL trades at a premium to LIC Housing and PNB Housing (both at 12-16x P/E) due to superior growth and asset quality, but at a discount to HDFC Bank and Axis Bank (25-27x and 20-22x P/E respectively) because banks have lower cost of capital, stronger deposit franchises, and diversified revenue streams. BHFL's NIM of 4.0% is higher than banks (3.5-3.8%) but lower than pure-play HFCs in the past, reflecting competitive pressure. BHFL's Gross NPA of 0.26% is the lowest among peers, but this is partly because the portfolio is young and growing rapidly. If BHFL's NPA rises to 0.35-0.40% (still low but normalized), provisions will increase and PAT growth will decelerate. The valuation gap between BHFL and banks will narrow if BHFL's growth slows or margins compress, as the market will reassess whether BHFL deserves a 5-7x premium to LIC Housing for only 2-3x higher growth.

• Quarterly Net Interest Margin (NIM) trend: if NIM falls below 3.9% or continues to compress 10+ bps per quarter, it signals accelerating competitive pressure and downside to earnings estimates.
• Gross NPA and loan loss provisions: monitor if Gross NPA rises above 0.30% or if loan loss provisions exceed 0.30% of average loan assets, indicating credit cycle stress.
• AUM growth rate and market share: if AUM growth slows below 15% or BHFL's rank falls below 2nd in loan disbursement, it signals market share loss to banks.
• Deposit growth and cost of funds: track whether BHFL can grow deposits at <6% cost; if deposit costs rise above 6%, NIM will compress further.
• Management commentary on rate cuts and competitive pricing: listen for guidance on NIM sustainability and pricing strategy in a declining rate environment.
• Regulatory changes: monitor RBI's housing finance guidelines (LTV caps, risk weights, underwriting standards) that could impact loan origination and profitability.
• Return on Equity (ROE) trend: if ROE falls below 12%, it signals deteriorating unit economics and may trigger a re-rating lower.

Bajaj Housing Finance is a well-managed company in a high-growth market, but the current valuation of 18-19x FY26E earnings offers limited margin of safety given rising execution risks. The company's 24% AUM growth and 18% PAT growth are impressive, but both are masking deteriorating unit economics: NIM is compressing (4.1% to 4.0% in one quarter), loan loss provisions are rising (10x increase in Q2 FY26), and competitive intensity is accelerating as banks enter affordable housing aggressively. Unless BHFL can demonstrate that it can maintain NIM above 3.9% and AUM growth above 18% despite RBI rate cuts and bank competition, the market's 15-18% PAT growth assumptions are at risk. The base case scenario of 13% FY26 PAT growth (vs. consensus 15-18%) and declining ROE (from 13% to 11-12% by FY27) suggests that the stock is fairly valued to slightly expensive at current levels. Investors should wait for clearer evidence of NIM stabilization and market share defense before initiating or adding positions. Key metrics to track: quarterly NIM, Gross NPA, AUM growth rate, and management's pricing guidance.