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After a remarkable market debut on Monday, Bajaj Housing Finance continued to rule Dalal Street on Tuesday. The shares, which opened 114 per cent higher than the issue price and marched ahead to settle 137 per cent higher on the BSE and the National Stock Exchange (NSE), soared another 10 per cent to hit an intraday high of Rs 181.48 per share on the bourses on Tuesday.
The surge has made Bajaj Housing Finance the biggest housing finance company in terms of market capitalisation that stood at Rs 1.47 trillion in intra day deals on Tuesday. This is more than double its initial public offering price-based valuation of Rs 58,300 crore. Meanwhile, Housing and Urban Development Corporation (Hudco), and LIC Housing with market-cap of Rs 48,916 crore and Rs 37,400 crore, respectively, occupy the next two slots.
However, Bajaj Housing Finance’s impressive market debut has left many investors questioning their next move. Specifically, those who missed the IPO allotment or failed to apply are now weighing their options. Should they invest now or consider established alternatives like LIC Housing Finance, the second biggest player by market share.
To be sure, the story doesn’t compare Bajaj Housing with Hudco as the share of home loans in the latter’s total sanctioned loans was nil and share in total disbursements was barely 1 per cent at the end of Q1FY25.
“Both, LIC Housing Finance and Bajaj Housing Finance, have healthy financials. However, BHFL is currently trading at a premium compared to LIC Housing Finance, reflecting its superior asset quality and higher net profit growth,” said Raj Gaikar, research analyst, SAMCO Securities.
BHFL vs LIC Housing: The number game
A comparative analysis of the financial performances of Bajaj Housing Finance and LIC Housing Finance reveals that Bajaj Housing Finance has a distinct edge. Notably, Bajaj Housing Finance demonstrated stronger revenue and profit growth, outpacing LIC Housing Finance in Q1FY25.
Bajaj Housing Finance’ total revenue from operations stood at Rs 2,208.65 crore for the quarter ended June 30, 2024, exhibiting a 25.26 per cent year-on-year (Y-o-Y) jump from Rs 1,763.25 crore reported in Q1FY24. It stood at Rs 7,617.31 crore for the entire financial year of 2023-24 (FY24).
On the other hand, LIC Housing Finance’s consolidated total revenue from operations for Q1FY25 witnessed a 0.55 per cent Y-o-Y rise to Rs 6,796.85 crore, compared to Rs 6,759.13 crore reported in Q1FY24. It stood at Rs 27,276.97 crore for FY24.
Besides, Bajaj Housing Finance’s profit after tax (PAT) for Q1FY25 stood at Rs 482.61 crore, 4.50 per cent higher than Rs 461.80 crore reported in Q1FY24. It was Rs 1,731.22 crore for FY24.
In comparison, LIC Housing Finance’s net profit after tax for the quarter ended June 30, 2024, dropped 1.96 per cent to Rs 1,306.40 crore from Rs 1,319.10 crore reported in Q1FY24. It stood at Rs 4,763.32 crore for FY24.
Superior asset quality
Analysts say BHFL, backed by the Bajaj Group, has shown exceptional growth in asset under management (AUM) and profit between FY22 and FY24. Its superior asset quality, with a lesser gross non-performing assets (GNPAs) highlights its robust risk management. In contrast, LIC Housing Finance, while a more established player, has slower growth and higher NPAs compared to BHFL, they added.
That said, Bajaj Housing Finance shares are priced at 3.2x their June 2024 book value, reflecting a premium. LIC Housing Finance, on the other hand, is trading at 1.2x book value which, analysts said, offers a more attractive entry point for conservative investors looking for steady performance.
“LIC Housing offers a better risk-reward ratio due to its lower valuation and steady performance. It’s more suitable for investors looking for value and stability without paying the premium attached to high-growth stocks like Bajaj Housing,” said Nirav Karkera, head of research at Fisdom.
Concurring with the view, brokerage firm PhillipCapital has initiated a ‘Buy’ rating on Bajaj Housing Finance, with a target price of Rs 210 — implying a 27 per cent upside from Monday’s closing price.
“Bajaj Housing Finance’s focus on loans with average ticket size of Rs 5 million addresses approximately 65 per cent of home-loan originations in India. With scale, BHFL has scope to improve its expense ratios, implying an improvement in return ratios ahead” PhillipCapital said.
First Published: Sep 17 2024 | 11:56 AM IS