Sell Bajaj Housing shares, says Kotak; here are target prices for Bajaj Finance and Bajaj Finserv

Domestic brokerage firm Kotak Institutional Equities has initiated (or reinitiated) coverage of the financial counter of Bajaj Group, namely- Bajaj Housing Finance Ltd, Bajaj Finance Ltd and Bajaj Finserv Ltd. However, it has a mixed view on the counters

Kotak initiated coverage on Bajaj Housing with a 'sell' rating, noting its expensive valuations. A strong growth trajectory (24 per cent AUM CAGR over FY2024-27E) mostly in the prime segment, higher pedigree and clean asset quality over the years are key positives; intense competition and low spreads in prime housing cap medium-term RoE to mid-teen levels, it said.

Bajaj Housing Finance trades rich valuations, posing downside risk and drives our 'sell' rating. Long growth runway and pristine asset quality are key positives, driving 24 per cent PAT CAGR for FY2024-27E, it added with a target price of Rs 100, suggesting a 21 per cent slide. It cited sustained high growth, NIMs risk and stiff competition as the key concerns for the company.

Bajaj Housing Finance made its Dalal Street debut at the bourses in September 2024, when the company raised a total of Rs 6,560 crore from its primary stake sale, selling its shares for Rs 70 apiece. The stock delivered multibagger returns to investors zooming 170 per cent to Rs 188.45 post listing. However, it dropped to Rs 124.95 in December 2024 and is currently hovering near its all time lows at Rs 126.70. Kotak sees more corrections on the counter.

Reinstating its coverage on Bajaj Finance, Kotak said that it remains a high-growth model, rallying significantly faster than the system by embarking on further deepening of its business franchise. While lending yields compress over the medium term, improving productivity gains will likely offset to maintain over 20 per cent RoEs.

"Valuations, juxtaposing its superior performance and following a long phase of underperformance, are not demanding, driving an 'add' rating with an fair value of Rs 8,000," it added. "Asset and liability-side challenges for dominant players that consistently gain share, delay in peeking out of credit costs and keyman are key risks."

On the other hand, Bajaj Finance Ltd rose about 1.5 per cent during the trading session on Friday, with it total market capitalization nearing Rs 4.7 lakh crore mark. The stock has zoomed nearly 22 times in the last 10 years, while it has gained 80 per cent in the last one year. However, the stock has remained largely flat in the last one year.

Kotak also reinitiated coverage on Bajaj Finserv as it sees a strong expansion across business lines with moderate-to-high margins and a focus on profitability are long-term value drivers. The new business lines will likely generate value over time. It values Bajaj Allianz Life at 2times EV and Bajaj Allianz General at 3.6 times book/24 times earnings.

"We assign a 10 per cent holding company discount. Bajaj Finance, with a 39 per cent unsecured loan book in FY2024, is leveraged to the asset quality cycle; on the other hand, insurance companies are defensives. New businesses of health, distribution and asset management will add value over time," Kotak added with a 'buy' rating on Bajaj Finserv with a target price of Rs 1,930.

Bajaj Finserv, the flagship company of the Bajaj Group, rose over a per cent on Friday to Rs 1,720.10. The total market capitalization of the company stood at Rs 2.75 lakh crore. The stock has doubled investors wealth in the last five year, but it is has remained flat in the last one year.