Why Bajaj Housing Finance Stock is Falling While Business Soars

Bajaj Housing Finance's stock price has seen a considerable drop, currently trading 28.2% below its 52-week high. This decline contrasts sharply with the company's strong financial performance, which saw record revenue of Rs 3,063 crore and record profit after tax of Rs 715 crore in Q1 FY27. The business has consistently shown year-on-year growth since its listing.

The stock's fall is partly due to the initial listing euphoria, where valuations were priced at a premium, factoring in several years of future earnings. The subsequent decline from its peak reflects a normalization of these high expectations and multiple compression, rather than a deterioration in business fundamentals.

Despite the stock's performance, the underlying business remains robust. Revenue has grown at a 25.3% CAGR over three years, with profit growing at 26.9%. Asset quality is a key strength, with Gross NPA at 0.29% and Net NPA at 0.12% in Q1 FY27. However, Net Interest Margins (NIMs) are expected to moderate by 20-25 basis points in FY27 due to competitive pressures and the replacement of higher-yielding legacy loans with lower-yielding new ones.

Currently, Bajaj Housing Finance trades at a P/E of 26.1x and a Price to Book value of 3.14x, which is a premium to the industry averages. The investment debate centers on whether the company can sustain its growth while improving Return on Equity (ROE) from its current expected range of 12-13% for FY27. Significant improvement in ROE will be crucial to justify the current valuation premium, especially as margin compression poses a risk.