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Earnings beat driven by lower credit costs; NIM dips QoQ

* Bajaj Housing (BHFL)’s 1QFY27 PAT grew 23% YoY to ~INR7.2b (~5% beat). NII grew 9% YoY to ~INR9.7b (in line). Other income grew 64% YoY to ~INR2.1b (~11% beat). NTI grew ~16% YoY to INR11.7b (in line) in 1QFY27.

* Opex rose 7% YoY to INR2.3b (in line). PPoP grew 18% YoY to INR9.4b (in line).

* Net credit costs declined to INR161m (~75% lower than est.). This translated into an annualized credit cost of ~5bp (PY: ~16bp). Management shared that the exceptionally low credit cost in 1QFY27 was driven by direct assignments of ~INR23b in the quarter, which led to a release of Stage 1 provisions. The absence of any accelerated provisioning (seen earlier in 4QFY26 amid macro and geopolitical uncertainties) also supported the lower credit costs.

* AUM grew 24% YoY to ~INR1.5t as of Jun’26, while 1QFY27 disbursements grew ~33% YoY to ~INR195b. BHFL highlighted that growth momentum remains broad-based, with the company gaining a larger share of industry growth rather than benefiting from any meaningful easing in competitive intensity. The company guided for AUM growth of ~21-23% in FY27, and we estimate an AUM growth of ~25% in FY27.

* BHFL shared that the runoff of higher-yielding legacy loans and their replacement with lower-IRR new origination is leading to natural portfolio yield compression. The company expects a further ~6-10bp NTI compression through FY27, with full-year FY27 NTI compression of ~25bp. We model NTI of 3.62%/3.56% in FY27/FY28E (vs. 3.92% in FY26).

* We continue to remain confident in management's ability to deliver strong disbursement and AUM growth. While the runoff of higher-yielding legacy loans is likely to keep yields under pressure in the near term, the company's strong growth trajectory, increasing scale, and focus on higher-yielding segments should support healthy earnings growth.

* We estimate BHFL to post a CAGR of ~24%/20% in AUM/PAT over FY26-28E and RoA/RoE of ~2.1%/13.5% in FY28E. Reiterate Neutral with a TP of INR95 (based on 2.7x FY28E BVPS), as current valuations largely factor in medium-term growth and profitability potential.

Yields largely stable; NIM contracts ~14bp QoQ

* Reported yield was largely stable QoQ at ~8.9% while CoB declined ~7bp QoQ to ~7.2%. Spreads were broadly stable QoQ at 1.7%.

* Reported NIM dipped ~14bp QoQ to ~3.7% for the quarter.

* The cost of funds declined during the quarter, driven by the hedged borrowing book, the maturity of higher-cost legacy borrowings, and the repricing of select borrowings at lower rates. Going forward, the company expects borrowing costs to remain broadly stable with a modest downward bias.

Valuation and view

* BHFL delivered a mixed quarter, with broad-based growth momentum driving strong AUM growth. However, NIM declined during the quarter, with a further 6-10bp compression expected

during the year as higher-yielding legacy loans run off and are replaced by lower-yielding originations. On the positive side, asset quality remained stable, with credit costs staying benign.

* Given these dynamics, the current valuation of 2.9x FY27E already reflects its medium-term growth and profitability potential. We reiterate a Neutral rating on the stock with a TP of INR95 (based on 2.7x FY28E BVPS).

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