Bajaj Housing Finance Vs LIC Housing Finance: From M-Cap To Asset Quality; Here's How To Pick Better

Bajaj Housing Finance Limited (BHFL) has continued its rise following an extraordinary debut on Monday, BHFL shares surged by 114% over their issue price, closing at 136% higher on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The momentum didn't stop there, as the stock climbed an additional 10% on Tuesday, reaching a record high of Rs 181.48 per share. This rally has sparked discussions among investors about whether this is the right time to invest in the company or whether it's better to stick with more established housing finance companies.

Bajaj Housing Finance's rise has been nothing short of phenomenal, with its current market capitalization standing at Rs 1.51 trillion. This makes BHFL the largest housing finance company in India, surpassing its IPO valuation of Rs 58,300 crore by over 2.5 times. In doing so, BHFL has overtaken major players such as the Housing and Urban Development Corporation (Hudco) and LIC Housing Finance, which have market capitalizations of Rs 49,056 crore and Rs 37,239 crore, respectively.

The success of Bajaj Housing Finance's debut has left many investors, especially those who missed out on the IPO, wondering whether it's still a good idea to invest at the current levels. Should they take the plunge now, hoping for continued growth, or consider more established competitors like LIC Housing Finance, the second-largest player in the market?

It's crucial to understand that Bajaj Housing Finance and its competitors, such as Hudco, have vastly different business models. For instance, in Q1 of FY25, Hudco's share of home loans in its total sanctioned loans was non-existent, with home loans contributing to just 1% of its total disbursements. This suggests that Hudco's exposure to the housing finance segment is minimal.

Financial Performance
One of the primary factors driving BHFL's strong performance is its impressive financial growth, which outpaces that of LIC Housing Finance. Let's break down the numbers:

Revenue Growth: In Q1FY25, Bajaj Housing Finance reported total revenue from operations of Rs 2,208.65 crore, marking a 25.26% year-on-year (YoY) growth from Rs 1,763.25 crore in Q1FY24. For the entire FY24, its revenue stood at Rs 7,617.31 crore. In contrast, LIC Housing Finance recorded a consolidated total revenue of Rs 6,796.85 crore in Q1FY25, a mere 0.55% YoY increase from Rs 6,759.13 crore in the corresponding quarter of the previous year. LIC Housing's revenue for FY24 was Rs 27,276.97 crore.

Profit After Tax (PAT): Bajaj Housing Finance registered a PAT of Rs 482.61 crore in Q1FY25, a 4.50% increase from Rs 461.80 crore in Q1FY24. Its full-year PAT for FY24 was Rs 1,731.22 crore. LIC Housing Finance, however, saw a decline in profit, with its Q1FY25 PAT falling by 1.96% to Rs 1,306.40 crore from Rs 1,319.10 crore in the previous year. Its PAT for FY24 stood at Rs 4,763.32 crore.

Asset Quality
Analysts have praised Bajaj Housing Finance for its impressive growth in assets under management (AUM) and profit between FY22 and FY24. The company's lower gross non-performing assets (GNPAs) indicate a strong risk management framework.

On the other hand, LIC Housing, despite being a more established player, has experienced slower growth and higher NPAs compared to Bajaj Housing.

Valuation
When it comes to valuations, Bajaj Housing Finance is currently trading at a premium, with shares priced at 3.2 times their June 2024 book value. LIC Housing, in comparison, is trading at 1.2 times its book value, making it a more attractive entry point for conservative investors who prefer a more established and steady performer.

The higher valuation for BHFL suggests that the market is pricing in its growth potential and leadership position in the housing finance sector. However, the premium valuation may not be suitable for all investors.

Despite its rapid rise, analysts believe that Bajaj Housing Finance still has room to grow. Brokerage firm PhillipCapital has initiated a 'Buy' rating for the stock, with a target price of Rs 210 per share. This target implies a potential upside of 15.7% from Tuesday's closing price. According to PhillipCapital, BHFL has significant scope for performance improvement as it scales up its operations.

"Bajaj Housing Finance's focus on loans with an average ticket size of ₹5 million addresses approximately 65% of home-loan originations in India. With scale, BHFL has scope to improve its expense ratios, implying an improvement in return ratios ahead," PhillipCapital noted.

One of the key differentiators for Bajaj Housing Finance is its focus on catering to home loan customers with an average ticket size of Rs 5 million. This target market represents a significant portion of home loan originations in India, allowing BHFL to tap into a vast and growing customer base.

LIC Housing Finance, while being a market leader in the traditional housing finance sector, has been slower to adapt to changing consumer preferences. This slower pace of adaptation has allowed BHFL to capitalize on emerging opportunities, positioning itself as a formidable competitor in the housing finance space.

For investors considering entering BHFL at its current levels, it's essential to weigh the company's strong growth prospects against its premium valuation. While BHFL has demonstrated exceptional performance and is backed by the reputable Bajaj Group, its current price may be steep for risk-averse investors.