September 23, 2024
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Stock Market

LIC Housing Finance vs Bajaj Housing Finance

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Stock Market

LIC Housing Finance vs Bajaj Housing Finance

Housing is a basic necessity for humans. As land prices soar across the world, especially in growth economies they tend to get more pricier. With the increase in dynamics like population, income, and expansions into newer cities with developing infrastructure, the prices are set to increase. In this article, we will look at LIC Housing Finance vs Bajaj Housing Finance, two behemoths in the housing industry about their financials, key metrics, and plans.

To afford a house for individuals they approach housing finance companies for funds to buy a property, construction, or repairs. The affordability of prices to construct a house tends to increase with inflation. Now India is at the forefront of the economic boom. Some established players make the most of these opportunities.

Company Overview

LIC Housing Finance

LIC Housing Finance was incorporated in 1989. LIC Housing Finance Ltd (LICHFL) is into housing finance. Their primary objective is to provide long-term finance to individuals for the construction or purchase of residential properties. LICHF’s product portfolio includes plot loans, home loans, home improvement, construction and extension loans, loans against property and refinance home loans, among others.

Their services cater to a wide range of customers, which includes professionals, individuals, developers, and builders providing finance for purposes like business needs, residential construction, and equipment purchases. LICHFL operates through a network of branch offices, subsidiaries, direct selling agents, loan agents, and customer relationship associates.

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They have a significant presence across India and operate an overseas office situated in Dubai. Their headquarters is in Mumbai. Their AUM in FY24 stood at Rs. 2,88,665 crore. The average ticket size as on June 30th 2024 was around 30 lakhs.

Bajaj Housing Finance

Bajaj Housing Finance was founded in 2008. They are in the major business of Housing Finance and non-depositing companies. They have been registered with the NHB from 2015. Their products range from mortgage products, including lease rental discounting, home loans, property loans, and financing developers. Bajaj Housing focuses on retail housing loans for individuals. Most of their portfolio consists of salaried customers with low risk.

As of June 30, 2024, Bajaj Housing Finance has a wide network of 215 branches across 174 locations in India. They use both direct and indirect channels for loan origination, including partnerships with developers, digital platforms, and intermediaries.

The company emphasizes digitization and innovation, introducing features like OTP-based e-agreements and a DIY home loan portal to streamline the loan process. Their Assets Under Management (AUM) as of June 30th, 2024 stood at Rs. 97,071.33 crore. The average ticket size as of June 30th stood at 46 lakh.

Recent Market Listing of Bajaj Housing Finance

Bajaj Housing Finance recently listed on the bourses with a price of Rs. 150 with a 52W high of Rs. 188.50 indicating a gain of 25.66% from the listing price. The IPO allotees gained from listing gains of around 114%. The IPO price range was Rs. 66 to Rs. 70. It turned out to be one of the successful IPOs for Bajaj. They even garnered one of the highest applications of around 89 lakhs.

Industry Overview And Outlook

The Indian housing finance industry is experiencing strong growth, with a robust 13% Compound Annual Growth Rate (CAGR) expected over FY23-26. The Reserve Bank of India (RBI) reported that credit outstanding to the housing sector reached a record Rs. 27.23 lakh crore in March this year, following a nearly Rs. 10 lakh crore increase over the last two fiscal years.

Housing finance is considered one of the safest asset classes, with a low GNPA (%) of 1.6% for Fiscal 2023 and credit costs of 0.5% for the same period, second only to gold loans at 0.1%. Looking ahead, Crisil MI&A expects the overall housing segment to grow at a CAGR of 13-15% from Fiscal 2024 to Fiscal 2027. The Government of India is also implementing various social welfare schemes to increase access to credit and promote home ownership in the country.

Financial Overview And Its Segments

Financials

The LIC Housing Finance net interest income in FY24 was Rs. 8,650.89 crore, up 36.66% YoY from Rs. 6,330.26 crore in FY23. Net Profits stood at Rs. 4,759.56 crore in FY24 improved by 64.62% YoY from Rs. 2,891.17 crore in FY23.

Bajaj Housing Finance in FY24 the net interest income stood at Rs. 2,509.75 crore which is higher by 22% from Rs. 2,057.92 crore in FY23. The Net Profits stood at Rs. 1,731.22 crore in FY24 improved from Rs. 1,257.80 crore in FY23.

Based on both the company’s income it shows LIC is making higher revenue than Bajaj. When compared with net income growth YoY LIC fares better than Bajaj. However, a long period of growth needs to be considered while understanding the company’s constant growth rate over the period.

To understand operational efficiency, looking at the Operational expenses to total income ratio is relevant. LICHF in FY24 stood at 13% compared to Bajaj’s 24%. In efficiency LIC fares better than Bajaj.

For borrowings, LIC takes 52% from Fixed-rate borrowings and 48% from floating rates. Whereas for Bajaj it is 42.40% from Fixed and 57.60% from Floating rate borrowings. More floating rate borrowings might be beneficial for the companies to maintain their margins with the change in market dynamics and reduce interest risk.

Segments

LICHF’s majority of the revenue comes from Loans which accounted for 99.66% and the remaining 0.33% from Others in FY24. Loans include finance for repairs, construction, and renovation of buildings. Others include marketing financial products and services,

Bajaj recognizes its revenue from its financing business. The major state involved is Maharashtra, which accounts for 32% of the AUM and 35.80% of disbursements. Karnataka stands second with 22.70% of AUM and 21.10% of disbursements, and Telangana with 14.80% of AUM and 13.70% of disbursements as of June 30, 2024.

Ratios & their Key Performance Indicators

The NIM for LICHF in FY24 stood at 3.08% compared to 2.41% in FY23. Bajaj’s NIM stood at 4.1% in FY24 compared to 4.5% in FY23. LIC’s margins have improved year over year, whereas Bajaj’s have decreased. However, Bajaj has superior margins compared to LIC Housing Finance. Over time, maintaining or improving margins can increase the company’s profits and increase the value for its shareholders.

LICHF’s CRAR stood at 20.78%, and Bajaj’s was 21.28% in FY24. LICHF’s has improved YoY, whereas Bajaj’s has decreased. Both companies are maintaining more than the regulatory requirement of 15%. Maintaining a high CRAR ensures financial stability and regulatory compliance.

For expected losses, finance companies keep certain funds as a provision. The Provision coverage ratio for LICHF in FY24 stood at around 66.12% and for Bajaj, it was 63.70%. Keeping the ratio in the balance is crucial. Keeping excess provisions can reduce the profits but being prudent with risk based on the asset quality will stand out to gain in the long term. Here Bajaj has a bit lower provision compared to LICHF. This will help to maintain their risk appetite as well as to retain profits.

Based on GNPA, LIC had 3.31% in FY24, compared to Bajaj’s 0.27%. This shows how wide the gap between the companies is in Asset Quality. Considering PCR and GNPA, Bajaj stands better in financial stability compared to LICHF. As GNPA is lower, and considering PCR, which is near LICHFL, Bajaj looks better. The NNPA for LICHF in FY24 stood at 1.63% against Bajaj’s 0.10%. In this case, Bajaj outperforms on Asset Quality.