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The recent stellar listing of Bajaj Housing Finance has sparked a debate about valuations within the Indian housing finance sector. The IPO's success highlights the stark contrast in valuations between established players like LIC Housing Finance and newer entrants. LIC Housing Finance, despite boasting the largest asset book, trades at a discount to its one-year forward estimated book value. Conversely, Bajaj Housing Finance is now valued at 6.2 times FY26 estimated book value, a significant premium reflecting the exuberance of the primary market.
While Bajaj Housing Finance's valuations may seem out of whack, investors looking for potential value in the sector are exploring relatively cheaper options. Companies like Repco Home Finance, India Shelter, Home First Finance, and Aadhar Housing Finance trade at a lower multiple of 2 to 3 times the FY26 estimated book value. However, it's crucial to remember that valuation alone shouldn't be the sole factor driving investment decisions. Investors should conduct thorough due diligence and consider a calculated risk assessment before making any decisions.
Despite its lower valuation, LIC Housing Finance faces headwinds. Its growth rates have moderated, with assets under management increasing by only 4 percent in the past two quarters. This contrasts with the robust growth exhibited by Bajaj Housing Finance, Home First Finance, and Aadhar Housing Finance during FY19-24. LIC Housing Finance aims for double-digit growth in assets under management in FY25, but investor expectations remain subdued.
Further concerns arise from the potential for a reversal in the recent improvement of LIC Housing Finance's net interest margins (NIMs). The company's heavily floating loan book, exceeding 99 percent, makes it susceptible to rapid repricing in the event of rate cuts. This could negatively impact NIMs as asset repricing is expected to outpace liability repricing due to longer borrowing tenures. Analysts at Nomura highlight this vulnerability as a key concern weighing on LIC Housing Finance's valuation.
The contrast between LIC Housing Finance and its private sector peers reflects a broader trend in India's financial sector. State-owned entities often trade at a discount due to perceived inefficiencies and slower growth compared to their private counterparts. While LIC Housing Finance may not match the growth rates of private players, improvements in key business metrics are crucial for bolstering its stock valuations. Investors should carefully assess the company's future prospects and consider the potential risks before making any investment decisions.
Source: Moneycontrol Pro Panorama | Will Bajaj Housing Finance's sparkling debut rub off on peers?