With a market capitalisation of ₹90,906 crores, Bajaj Housing Finance commands a premium valuation at 42x trailing twelve-month earnings, substantially above the housing finance sector average of 24x. The company's stock price has retreated 25.96% from its 52-week high of ₹147.70, raising critical questions about whether the current dip presents an attractive entry point or signals deeper concerns about valuation sustainability.
The quarter's results showcase Bajaj Housing Finance's ability to maintain strong growth momentum in a challenging interest rate environment. Interest income rose to ₹2,735.61 crores in Q2 FY26 from ₹2,606.86 crores in Q1 FY26, representing sequential growth of 4.94%. On a year-on-year basis, the expansion was even more pronounced at 14.10%, reflecting robust loan book growth and healthy credit demand in the housing finance segment.
| Quarter | Interest Income (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | NIM (%) |
|---|---|---|---|---|---|
| Sep'25 | 2,735.61 | +4.94% | 642.96 | +10.23% | 30.87% |
| Jun'25 | 2,606.86 | +4.33% | 583.30 | -0.58% | 29.46% |
| Mar'25 | 2,498.67 | +2.61% | 586.68 | +7.05% | 29.25% |
| Dec'24 | 2,435.16 | +1.56% | 548.02 | +0.44% | 29.70% |
| Sep'24 | 2,397.65 | +9.15% | 545.60 | +13.05% | 29.93% |
| Jun'24 | 2,196.69 | +10.58% | 482.61 | +26.55% | 29.13% |
| Mar'24 | 1,986.56 | — | 381.34 | — | 25.09% |
Financial Performance: Margin Expansion Drives Profitability
Bajaj Housing Finance's Q2 FY26 financial performance demonstrates impressive operational efficiency alongside top-line growth. The company's net interest margin expanded significantly to 30.87%, up 141 basis points from 29.46% in Q1 FY26, reflecting effective pricing strategies and favourable funding cost dynamics. This margin improvement translated directly to the bottom line, with profit after tax margin reaching 23.50%, up from 22.38% in the previous quarter.
The operating profit before depreciation, interest, and tax (PBDIT) excluding other income stood at ₹2,502.17 crores in Q2 FY26, marking the highest level in the company's recent history. This represented a 5.52% sequential increase and underscored the company's ability to generate strong operating leverage. The PBDIT margin remained robust at 91.47%, albeit slightly lower than the 93.06% recorded in the year-ago quarter, reflecting modest pressure on operating efficiency.
Interest expenses rose to ₹1,657.96 crores in Q2 FY26 from ₹1,605.96 crores in Q1 FY26, reflecting the company's expanding borrowing base to fund loan book growth. The operating profit to interest coverage ratio stood at a healthy 1.51 times, the highest in recent quarters, indicating comfortable debt servicing capacity despite the elevated leverage typical of housing finance companies.
Employee costs remained well-controlled at ₹136.09 crores, virtually flat sequentially, demonstrating operational discipline. The tax rate for Q2 FY26 was 22.78%, marginally lower than the 22.94% in Q1 FY26, contributing to the bottom-line improvement. Earnings per share for the quarter came in at ₹0.77, marking the highest quarterly EPS in the company's history.
Capital Efficiency: ROE Concerns Persist Despite Growth
While Bajaj Housing Finance has delivered strong absolute profit growth, its return on equity metrics reveal a more nuanced picture. The company's latest ROE stands at 10.84%, with an average ROE of 13.00% over recent periods. For a housing finance company operating in a capital-intensive business, these returns fall short of the premium valuation the stock commands and lag behind some peers in the sector.
Higher ROE is a critical indicator of capital efficiency and profitability, showing how effectively a company generates returns on shareholder funds. Bajaj Housing Finance's ROE, whilst respectable, does not justify the 42x P/E multiple, especially when compared to peers like Aptus Value Housing Finance, which delivers a superior ROE of 16.55% whilst trading at a more modest 17.57x earnings.
Capital Efficiency Watch
ROE Concern: At 10.84%, Bajaj Housing Finance's return on equity lags behind the sector's top performers and does not adequately support the premium valuation. The company's average ROE of 13.00% is decent but not exceptional, particularly given the 4.11x debt-to-equity ratio. Investors should monitor whether management can improve capital efficiency through better pricing, lower funding costs, or enhanced operational leverage.
The company's balance sheet shows shareholder funds of ₹19,946.80 crores as of March 2025, up substantially from ₹12,233.50 crores in March 2024, following a significant capital raise. This equity infusion has strengthened the capital base but also raises the bar for generating adequate returns. With a book value per share of ₹23.95, the stock's price-to-book ratio of 4.57x implies the market is pricing in significant future growth and profitability improvements.
Leverage and Liquidity: High Debt Levels Typical of Sector
As a housing finance company, Bajaj Housing Finance operates with substantial leverage, reflected in its debt-to-equity ratio of 4.11x. This level is typical for the sector, where companies borrow extensively to fund loan books. Current liabilities stood at ₹82,981.69 crores as of March 2025, up from ₹69,682.53 crores in March 2024, indicating continued expansion of the borrowing base.
The company's cash flow statement reveals a negative operating cash flow of ₹17,074.87 crores for FY25, which is characteristic of rapidly growing lending institutions where loan disbursements significantly exceed repayments. This was funded through positive financing cash flow of ₹17,870.00 crores, demonstrating the company's continued access to capital markets and ability to raise funds for growth.
Growth Trajectory: Consistent Top-Line Expansion
Bajaj Housing Finance has demonstrated impressive long-term growth, with net sales (interest income) expanding at a compound annual growth rate of 30.00% over five years, and operating profit growing at 27.65% CAGR. For FY25, the company reported interest income of ₹9,575.00 crores, up 25.70% from ₹7,617.00 crores in FY24. This growth trajectory reflects strong demand for housing finance, the company's expanding market presence, and the backing of parent Bajaj Finance's distribution network and brand equity.
Peer Comparison: Premium Valuation Without Commensurate Returns
When benchmarked against housing finance peers, Bajaj Housing Finance's valuation premium becomes starkly apparent. The company trades at 42.13x trailing earnings, nearly double the sector average and significantly above established players like LIC Housing Finance (5.66x) and PNB Housing Finance (11.01x). Even compared to the higher-growth Aptus Value Housing Finance (17.57x) and Aadhar Housing Finance (22.72x), Bajaj Housing's multiple appears stretched.
| Company | P/E Ratio | Price/Book | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Bajaj Housing | 42.13 | 4.57 | 13.00 | 4.11 | — |
| LIC Housing Fin. | 5.66 | 0.08 | 9.78 | 0.71 | 1.76 |
| PNB Housing | 11.01 | 0.13 | 7.58 | 0.36 | 0.55 |
| Aadhar Hsg. Fin. | 22.72 | 3.38 | 14.31 | 2.56 | — |
| Aptus Value Hou. | 17.57 | 3.43 | 16.55 | 1.59 | 1.52 |
| Sammaan Capital | 12.10 | 0.70 | 5.28 | 1.96 | — |
The premium is partially justified by Bajaj Housing Finance's superior ROE of 13.00% compared to the peer average of approximately 11%, and its association with the well-regarded Bajaj Finance brand. However, the price-to-book ratio of 4.57x—more than three times higher than Aptus Value Housing's 3.43x despite lower ROE—suggests the market may be overly optimistic about future growth prospects or underestimating execution risks.
Notably, Bajaj Housing Finance does not currently pay dividends, unlike LIC Housing Finance (1.76% yield) and Aptus Value Housing (1.52% yield), which may deter income-focused investors. The absence of dividend distribution suggests management is prioritising capital retention for growth, but it also means investors are entirely dependent on capital appreciation for returns.
Valuation Analysis: Expensive by All Metrics
Bajaj Housing Finance's valuation metrics uniformly point to an expensive stock. Beyond the elevated P/E ratio of 42.13x, the company's EV/EBITDA multiple of 61.59x and EV/Sales ratio of 18.08x are substantially above housing finance sector norms. The stock's valuation grade has oscillated between "Expensive" and "Very Expensive" throughout 2025, currently sitting at "Expensive" as of mid-October 2025.
The company's price-to-book ratio of 4.57x implies the market values Bajaj Housing Finance at more than four and a half times its net asset value, reflecting strong expectations for future profitability. However, this premium appears difficult to justify given the current ROE of 10.84%. For the valuation to be sustainable, the company would need to demonstrate significant ROE expansion or maintain extraordinary growth rates for an extended period.
The stock currently trades at ₹109.35, approximately 25.96% below its 52-week high of ₹147.70 and just 6.17% above its 52-week low of ₹103.00. This suggests limited downside protection at current levels, but also indicates the market has already corrected much of the earlier exuberance. Any further deterioration in fundamentals or broader market weakness could push the stock towards the lower end of its trading range.
Shareholding Pattern: Stable Promoter Base, Limited Institutional Interest
Bajaj Housing Finance's shareholding structure is dominated by promoter Bajaj Finance Ltd., which holds 88.70% of the equity as of September 2025. This promoter holding has remained remarkably stable, with only a marginal 0.05% reduction in June 2025. The high promoter stake provides management stability and strategic alignment with the parent company's objectives, but it also means limited free float for public investors.
| Quarter | Promoter (%) | FII (%) | MF (%) | Insurance (%) | Other DII (%) |
|---|---|---|---|---|---|
| Sep'25 | 88.70 | 0.86 | 0.33 | 0.19 | 0.07 |
| Jun'25 | 88.70 | 0.93 | 0.32 | 0.25 | 0.14 |
| Mar'25 | 88.75 | 1.01 | 0.45 | 0.25 | 0.14 |
| Dec'24 | 88.75 | 1.00 | 0.47 | 0.25 | 0.21 |
| Sep'24 | 88.75 | 1.68 | 1.36 | 0.30 | 0.28 |
Institutional participation has declined notably over recent quarters. Foreign institutional investor (FII) holdings dropped from 1.68% in September 2024 to 0.86% in September 2025, a reduction of 82 basis points. More concerning is the mutual fund exodus, with holdings plummeting from 1.36% to 0.33% over the same period—a decline of 103 basis points. This institutional selling suggests professional investors are taking profits or losing confidence in the stock's near-term prospects at elevated valuations.
Insurance company holdings have also contracted from 0.30% to 0.19%, whilst other domestic institutional investors (DIIs) reduced their stake from 0.28% to 0.07%. The aggregate institutional holding of just 1.44% is remarkably low for a company of this size and indicates limited conviction amongst professional investors. In contrast, non-institutional holdings have increased from 7.64% to 9.86%, suggesting retail investors are accumulating shares that institutions are offloading.
Stock Performance: Significant Underperformance Across All Timeframes
Bajaj Housing Finance's stock performance has been disappointing across virtually all timeframes. Over the past year, the stock has declined 20.56%, whilst the Sensex gained 3.65%, resulting in a negative alpha of 24.21 percentage points. This underperformance has been consistent, with the stock lagging the benchmark over one month (-4.01% alpha), three months (-6.93% alpha), six months (-10.80% alpha), and year-to-date (-20.82% alpha).
| Period | Stock Return | Sensex Return | Alpha | Sector Return |
|---|---|---|---|---|
| 1 Week | -1.26% | -1.30% | +0.04% | — |
| 1 Month | -2.15% | +1.86% | -4.01% | — |
| 3 Months | -3.49% | +3.44% | -6.93% | — |
| 6 Months | -7.49% | +3.31% | -10.80% | — |
| YTD | -14.20% | +6.62% | -20.82% | — |
| 1 Year | -20.56% | +3.65% | -24.21% | +16.85% |
Perhaps most damning is the stock's underperformance versus the housing finance sector, which delivered a positive return of 16.85% over the past year. Bajaj Housing Finance's 37.41 percentage point underperformance relative to sector peers suggests company-specific issues beyond broader market dynamics. The stock's risk-adjusted return of -0.77 over one year, combined with 26.74% volatility, places it in the "Medium Risk Low Return" category—an unfavourable combination for investors.
From a technical perspective, the stock is currently in a "Mildly Bearish" trend as of November 3, 2025, having oscillated between bearish and mildly bearish trends since late September. The stock trades below all key moving averages—5-day (₹110.22), 20-day (₹109.87), 50-day (₹111.46), 100-day (₹114.91), and 200-day (₹116.91)—indicating sustained selling pressure. Immediate support lies at the 52-week low of ₹103.00, whilst resistance is clustered around the 20-day moving average area.
"Despite delivering 30% revenue CAGR and expanding margins, Bajaj Housing Finance's stock has underperformed peers by 37 percentage points over the past year—a stark reminder that valuation matters as much as growth."
Investment Thesis: Quality Business at Expensive Valuation
Bajaj Housing Finance presents a paradox for investors: a fundamentally sound, well-managed housing finance company with strong growth credentials, yet saddled with a valuation that appears to price in near-perfection. The company's quality grade is "Good," reflecting robust long-term financial performance with 30% sales CAGR and 27.65% operating profit CAGR over five years. However, this quality comes at a steep price.
The company's Mojo Score of 44 out of 100 results in a "Sell" rating, down from "Hold" in late October 2025. This score reflects the tension between positive fundamentals (quarterly financial trend, long-term growth) and concerning factors (expensive valuation, bearish technical trend, consistent underperformance). The four-dot Mojo analysis reveals mixed near-term drivers, good quality, expensive valuation, and an overall mixed assessment.
Key Strengths & Risk Factors
Key Strengths ✓
- Robust Growth Trajectory: 30% sales CAGR and 27.65% operating profit CAGR over five years demonstrate strong market position and execution capability.
- Margin Expansion: Net interest margin improved to 30.87% in Q2 FY26, up 141 bps quarter-on-quarter, showing pricing power and funding efficiency.
- Consistent Profitability: Net profit of ₹642.96 crores in Q2 FY26 marks the highest quarterly profit, with PAT margin at 23.50%.
- Strong Parentage: Backing of Bajaj Finance provides brand equity, distribution network access, and strategic support.
- Stable Promoter Holding: 88.70% promoter stake ensures management stability and long-term strategic focus.
- Operational Efficiency: Operating profit to interest coverage at 1.51x demonstrates comfortable debt servicing capacity.
- Quality Recognition: "Good" quality grade based on long-term financial performance and growth consistency.
Key Concerns ⚠
- Excessive Valuation: P/E of 42.13x and P/BV of 4.57x are substantially above sector averages and not justified by current ROE levels.
- Weak ROE: Return on equity of 10.84% (average 13.00%) lags behind peers like Aptus Value Housing (16.55%) despite higher valuation.
- Institutional Exodus: FII holdings down 82 bps and MF holdings down 103 bps over the past year signal professional investor concerns.
- Consistent Underperformance: Stock down 20.56% over one year vs Sensex +3.65%, underperforming sector by 37.41 percentage points.
- Technical Weakness: Trading below all major moving averages in "Mildly Bearish" trend with limited support until ₹103.
- High Leverage: Debt-to-equity of 4.11x, whilst typical for sector, amplifies risk in rising rate environment.
- No Dividend: Absence of dividend yield limits total return potential and makes stock entirely dependent on capital appreciation.
Outlook: What to Watch
Positive Catalysts
- ROE Improvement: Sustained expansion in return on equity towards 15%+ would better justify premium valuation.
- Margin Sustainability: Maintaining NIMs above 30% whilst growing loan book would demonstrate pricing power.
- Market Share Gains: Continued outpacing of housing finance sector growth rates.
- Institutional Re-entry: Reversal of FII/MF selling trend would provide technical support.
- Valuation Correction: Stock approaching fair value (₹80-90) would create attractive entry point for quality business.
Red Flags
- Further Margin Compression: NIMs falling below 29% would pressure profitability and question pricing power.
- Asset Quality Deterioration: Any uptick in delinquencies or provisions would be concerning for growth-focused lender.
- Continued Institutional Selling: Further reduction in FII/MF holdings below 1% would signal deeper concerns.
- ROE Stagnation: Failure to improve capital efficiency would make valuation untenable.
- Technical Breakdown: Stock breaking below ₹103 (52-week low) could trigger accelerated selling.
The Verdict: Quality Business, Wrong Price
Score: 44/100
For Fresh Investors: Avoid at current levels. Bajaj Housing Finance is undoubtedly a well-managed, high-quality housing finance company with strong growth credentials and the backing of Bajaj Finance. However, the 42x P/E multiple and 4.57x price-to-book ratio are simply too expensive, especially given the modest 10.84% ROE. The stock has underperformed peers by 37 percentage points over the past year, and institutional investors are voting with their feet. Wait for a significant correction towards ₹85-90 (representing 20-25% downside) before considering entry.
For Existing Holders: Consider booking profits or trimming positions. Whilst the business fundamentals remain solid with 30% revenue CAGR and improving margins, the valuation offers limited upside and substantial downside risk. The consistent institutional selling and technical weakness suggest the path of least resistance is lower. If holding for long-term, be prepared for continued volatility and potential underperformance until valuation normalises. Set a stop-loss at ₹100 to protect capital.
Fair Value Estimate: ₹85-90 per share (22-27% downside from current levels), implying a more reasonable 32-35x earnings multiple for a housing finance company with 13% ROE.
Note— ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. The views expressed are those of the author and do not necessarily reflect the views of the publication.
