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The stellar listing of Bajaj Housing Finance highlights the stark contrast in valuations of housing finance stocks. LIC Housing Finance, the company with the largest asset book, is trading at a discount to its one year forward estimated book value. In comparison, Bajaj Housing Finance is now valued at 6.2 times FY26 estimated book value.
Bajaj Housing Finance’s valuations are out of whack and reflect the euphoria in the primary market. Investors looking to bet on housing finance can find relatively cheaper options in companies such as Repco Home Finance, India Shelter, Home First Finance and Aadhar Housing Finance, write Neha Dave and Khushboo Rai. The stocks are trading at around 2 to 3 times the FY26 estimated book value. “We aren’t suggesting investors to buy stock just because of low valuations, but they should rather take a calculated risk,” add Dave and Rai. Do read to find out their order of preferred companies.
Still, at less than 1 time the FY26 estimated book value, LIC Housing Finance is cheaper in the current context. However, the question is if LIC Housing Finance can catch investor fancy. Much depends on revival of growth rates.
Shares of LIC Housing Finance de-rated as growth rates at the company moderated. Assets under management increased by a modest 4 percent in the past two quarters. Loans at Bajaj Housing Finance, Home First Finance and Aadhar Housing Finance grew at a significantly better pace in FY19-24.
LIC Housing Finance aims to grow its assets under management in double digits or more than 10 percent in FY25. But expectations are muted.
The improvement in net interest margins (NIM) seen in recent years can reverse if the company has to reprice its loan book. “Around 99 percent of the loan book for LIC Housing Finance is floating in nature, highest amongst NBFC/ HFCs. Hence, in case of any rate cuts, its asset should re-price faster than liabilities (due to its longer tenure of borrowings) and thus, it should see the maximum negative impact to its NIMs,” warn analysts at Nomura.
The concerns are weighing on valuations of the LIC Housing Finance stock. As such, shares of state-owned entities trade at a discount to peers. This is reflected in the bank and insurance sectors. Companies in the private sector tend to adopt aggressive business practices and achieve superior growth rates. While one cannot expect LIC Housing Finance to match the growth rates of private peers, improvement in key business metrics can add heft to stock valuations.
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