Bajaj Housing Finance, a subsidiary of Bajaj Finance, made a shocking market debut, exceeding all anticipations with a stellar performance that fascinated investors.
On the first trading day, the stock extended 114% above its issue price, closing 137% higher on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The rally restarted on the next day, with the shares an extra 10%, achieving a height of ₹181.48 per share.
This upgrade not only placed Bajaj Housing Finance as the most important housing finance company by market capitalization, beating ₹1.47 trillion but also left other industry giants, such as Housing and Urban Development Corporation (HUDCO) and LIC Housing Finance, trailing significantly.
Understanding the Market Dynamics
The debut of Bajaj Housing Finance has flashed significant interest among investors, particularly those who forgot the initial public offering (IPO) or did not apply. Now, many are thinking whether to invest in Bajaj Housing Finance at current levels or to evaluate opportunities like LIC Housing Finance, which is the second-largest player by market share.
However, it is important to note that Bajaj Housing Finance’s focus is mainly on home loans, whereas HUDCO, despite being a player, has small exposure to this feature. Therefore, the competitive landscape is largely between Bajaj Housing Finance and LIC Housing Finance.
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Financial Performance: A Comparative Analysis
When reviewing the financials, Bajaj Housing Finance has shown great growth, outpacing its peers in the industry. In Q1FY25, Bajaj Housing Finance reported a total revenue from operations of ₹2,208.65 crore, marking a 25.26% year-on-year increase from ₹1,763.25 crore in Q1FY24. For FY24, the company reported a total revenue of ₹7,617.31 crore.
On the other hand, LIC Housing Finance recorded a marginal 0.55% year-on-year growth in close total revenue for Q1FY25, getting ₹6,796.85 crore compared to ₹6,759.13 crore in Q1FY24. Its total revenue for FY24 stood at ₹27,276.97 crore, reflecting slower growth corresponded to Bajaj Housing Finance.
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Also, Bajaj Housing Finance’s profit after tax (PAT) for Q1FY25 increased to ₹482.61 crore, a 4.50% increase from ₹461.80 crore in Q1FY24. For FY24, the PAT was ₹1,731.22 crore. On the other hand, LIC Housing Finance’s net profit for the same quarter declined by 1.96%, falling to ₹1,306.40 crore from ₹1,319.10 crore in Q1FY24, with the full-year PAT at ₹4,763.32 crore.
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Superior Asset Quality and Valuation Differences
An important factor driving Bajaj Housing Finance’s valuation premium is its best asset quality. Analysts highlight that Bajaj Housing Finance, supported by the full Bajaj Group, has shown remarkable increase in assets under management (AUM) and profits between FY22 and FY24, associated with lower gross non-performing assets (GNPAs).
This is expressive of risk management practices, setting Bajaj Housing Finance as the best choice for growth-oriented investors.
LIC Housing Finance, while established and with a strong market sight, shows slower growth rates and higher NPAs. Bajaj Housing Finance shares trade at about 3.2 times their June 2024 book value, reflecting a considerable premium over LIC Housing Finance, which trades at around 1.2 times its book value.
For investors pursuing value and stability without the higher valuation multiples, LIC Housing Finance offers a clear risk-reward ratio.
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Investment Outlook and Analyst Recommendations
For traditional investors prioritizing value and lower risk, LIC Housing Finance might present a more attractive entry point due to its lower valuation and stable performance. “LIC Housing Finance 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.
Otherwise, for those aiming higher growth possibility, Bajaj Housing Finance remains attractive despite its premium valuation. Brokerage firm PhillipCapital has issued a ‘Buy’ rating for Bajaj Housing Finance, with a target price of ₹210, indicating a 15.7% upside from the current levels.
The brokerage feels that the company’s focus on loans with an average ticket size of ₹5 million aligns well with about 65% of home loan originations in India, placing it for further growth as it scales processes and improves cost ratios.
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Conclusion
Bajaj Housing Finance’s achieving market debut highlights its strong financial health, superior asset quality, and growth trajectory, making it a tough player in the housing finance sector. However, the high valuation premium necessitates careful consideration of investment goals, whether prioritizing growth and market leadership or valuing stability and lower entry points.
As investors consider their choices, it is important to keep an eye on the broader market dynamics, including economic conditions, interest rate movements, and the competitive landscape. Both Bajaj Housing Finance and LIC Housing Finance offer unique investment propositions, and the choice finally depends on personal risk patience and investment strategy.
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This article is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any investment decisions. The information is based on sources deemed reliable but not guaranteed for accuracy or completeness.
