LIC Housing Finance: Undervalued or Overlooked?

LIC Housing Finance undervalued, growth essential

The recent listing of Bajaj Housing Finance underscores the significant disparity in valuations among housing finance stocks. LIC Housing Finance, which boasts the largest asset base in the sector, is trading at a discount relative to its projected book value for the next year. In contrast, Bajaj Housing Finance is currently valued at 6.2 times its estimated book value for FY26.

This high valuation for Bajaj Housing Finance indicates an overreaction in the primary market. For those interested in investing in housing finance, companies like Repco Home Finance, India Shelter, Home First Finance, and Aadhar Housing Finance present more reasonably priced alternatives, trading at about 2 to 3 times their FY26 estimated book value. Neha Dave and Khushboo Rai suggest that while these stocks are more affordable, investors should make informed decisions rather than just opting for lower valuations.

LIC Housing Finance, with a valuation of under 1 time its FY26 estimated book value, is currently priced attractively. However, its future appeal to investors will depend largely on whether it can improve its growth rates.

LIC Housing Finance has experienced a decline in its stock valuation as its growth rates have slowed. Over the past two quarters, the company’s assets under management (AUM) grew by just 4 percent. In contrast, other firms like Bajaj Housing Finance, Home First Finance, and Aadhar Housing Finance saw significantly higher loan growth from FY19 to FY24.

LIC Housing Finance targets a growth rate of over 10 percent for its AUM in FY25, but expectations remain cautious. Additionally, the recent improvement in its net interest margins (NIM) could be at risk if the company needs to adjust its loan book pricing. With approximately 99 percent of LIC Housing Finance’s loan book being floating-rate, it is highly sensitive to rate changes.

Analysts at Nomura caution that any rate cuts could negatively impact its NIMs, as the company’s assets would reprice faster than its liabilities due to the longer duration of its borrowings.

These concerns are impacting the valuation of LIC Housing Finance stock. Shares of state-owned companies generally trade at a discount compared to their private sector counterparts, as seen in the banking and insurance industries.

Private sector firms often pursue more aggressive business strategies and achieve higher growth rates. Although LIC Housing Finance may not match the growth of its private sector peers, improvements in key business metrics could enhance its stock valuation.