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What the record says.
Bajaj Housing Finance reported a stable Q2 FY26 with AUM growth of 24% YoY to INR 1,26,749 crore and PAT growth of 18% YoY to INR 643 crore. Disbursements grew 32% YoY to INR 15,914 crore, driven by strong momentum in home loans and LRD. Asset quality improved with GNPA at 0.26% and NNPA at 0.12%. Cost of funds declined 50bps YoY to 7.4%, but net interest margin compressed 10bps YoY to 4% due to portfolio yield pressure. Management maintained full-year NIM guidance of 15-20bps compression, factoring in another expected rate cut. Competition from PSU banks remains intense, especially in prime home loans, leading to elevated attrition of 21-22%. The company is focusing on deepening micro-market presence and expanding non-prime segments. A key risk is that margin compression could exceed guidance if competitive pricing pressures persist beyond expectations.
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Guidance to track
- Management expects full-year net interest margin to decline 15-20bps year-over-year, factoring in portfolio yield pressure and another expected rate cut in December.
- Management expects AUM growth to return to its medium-term trajectory in FY27 as attrition pressures ease with rate stabilization.
- Management reiterated its aspiration to achieve an operating expense to net total income ratio of 14-16% over a 3-4 year horizon.
- Management expects to reach a gearing ratio of approximately 7.5x within two to two and a half years, driven by growth and capital management.
Risks flagged
- PSU banks are aggressively pricing home loans, leading to elevated attrition (21-22%) and yield compression. Management acknowledged this as a cyclical feature but expects it to persist.
- Analyst questioned whether NIM decline could be sharper than guided 15-20bps. Management did not rule out further compression if competitive pressures intensify or rate cuts accelerate.
- As the company scales affordable housing and non-prime segments, credit costs could rise from current low levels. Management guided for normalized credit cost of 20-25bps, but actuals may vary.
- Management reduced assignment activity due to excess capital, leading to lower fee income. Future assignment levels depend on PBC requirements and ALM needs, creating income uncertainty.
Key quotes
- We do not believe in cutting the price, but we believe in always being competitive in the market.
- Our model is scale, low risk, and medium return, or a reasonable return. We do not say it's a scale, low risk, and low return.
- Cost of funds is not very different for a well-run, high-quality credit company is my assessment, and we continue to remain focused.
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