Bajaj Housing Finance’s Explosive IPO: Is It Time to Switch from LIC Housing Finance?

As Bajaj Housing Finance makes headlines with a sensational IPO debut, investors are grappling with a critical decision: should they jump on the Bajaj bandwagon or stick with the established LIC Housing Finance? Here’s a deep dive into what the recent market movements and financial figures suggest about these two housing finance giants.

Bajaj Housing Finance’s IPO: A Market Sensation

Bajaj Housing Finance has taken the stock market by storm since its IPO on Monday. The shares burst out of the gate with a staggering 114% rise from the issue price and continued to surge, closing 137% higher on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). On Tuesday, the stock hit an intraday peak of Rs 181.48 per share, marking a further 10% jump.

This meteoric rise has catapulted Bajaj Housing Finance to the top of the housing finance sector by market capitalization, which reached an impressive Rs 1.47 trillion during intra-day trading. This valuation dwarfs its IPO price-based valuation of Rs 58,300 crore, far surpassing its competitors, including Housing and Urban Development Corporation (Hudco) and LIC Housing Finance, which have market caps of Rs 48,916 crore and Rs 37,400 crore, respectively.

Comparing Financial Health: Bajaj vs. LIC Housing Finance

With Bajaj Housing Finance’s remarkable IPO performance, many investors are now debating whether to invest in this new player or opt for the stability of LIC Housing Finance, the second-largest player in the sector.

For the first quarter of FY25, Bajaj Housing Finance reported a profit after tax (PAT) of Rs 482.61 crore, marking a 4.5% increase from the previous year’s Rs 461.80 crore. For the entire financial year FY24, PAT was Rs 1,731.22 crore.

In contrast, LIC Housing Finance saw a slight dip in PAT for the quarter ending June 30, 2024, with earnings falling 1.96% to Rs 1,306.40 crore from Rs 1,319.10 crore in Q1FY24. For FY24, LIC Housing’s PAT was significantly higher at Rs 4,763.32 crore.

Asset Quality and Growth: The Key Differentiators

Analysts point out that Bajaj Housing Finance, backed by the renowned Bajaj Group, stands out with its impressive asset quality and rapid growth. Its asset under management (AUM) and profit have shown substantial growth from FY22 to FY24, aided by its strong risk management and lower gross non-performing assets (GNPAs).

On the other hand, LIC Housing Finance, while a well-established player, has shown slower growth and higher NPAs compared to Bajaj. This reflects a slower pace of recovery and potential riskier loans in its portfolio.

The valuation tells a story of its own. Bajaj Housing Finance shares are currently trading at 3.2 times their June 2024 book value, indicating a premium for its growth potential. Conversely, LIC Housing Finance shares are valued at 1.2 times their book value, making them a potentially attractive option for investors seeking stability without the higher premium associated with fast-growing stocks.

Investment Considerations: What Should Investors Do?

For conservative investors looking for stability and value, LIC Housing Finance might present a more appealing risk-reward ratio due to its lower valuation and steady performance. According to Nirav Karkera, head of research at Fisdom, LIC Housing offers a solid risk-reward proposition, ideal for those preferring a more stable investment without the premium of high-growth stocks like Bajaj Housing.

On the flip side, brokerage firm PhillipCapital has given a ‘Buy’ rating to Bajaj Housing Finance, setting a target price of Rs 210, suggesting a potential 27% upside from the recent closing price. They highlight that Bajaj’s focus on high-value home loans, which cover a significant portion of India’s home loan market, could further enhance its financial metrics.

In conclusion, while Bajaj Housing Finance’s IPO excitement presents a high-growth opportunity, LIC Housing Finance remains a stable alternative for those prioritizing steady returns. Investors need to weigh their appetite for risk against potential rewards to make the best choice for their portfolios.