Bajaj Housing Finance vs. Tata Capital: A Brief Comparison
In India’s rapidly expanding housing finance sector, two names stand out: Bajaj Housing Finance Limited (BHFL) and Tata Capital Ltd. Both companies have strong brand equity and vast operations, but they cater to distinct market needs and operate with different strategic visions. This blog compares the two, offering a deep dive into their operations, growth strategies, financial performance, and market positioning.
Overview of Bajaj Housing Finance Limited (BHFL)
Founded in 2015, BHFL is a subsidiary of Bajaj Finance Ltd., one of India’s most well-known non-banking financial companies (NBFCs). BHFL provides a wide range of financial products, including:
- Home Loans: Accounts for 58% of the portfolio with a focus on salaried and self-employed professionals. The AUM for home loans grew by 24% to ₹52,819 crore.
- Loans Against Property (LAP): Targets SMEs, MSMEs, and self-employed individuals with an AUM of ₹9,568 crore, up by 22%.
- Lease Rental Discounting (LRD): Provides loans ranging from ₹10 crore to ₹550 crore, with an AUM of ₹17,637 crore, reflecting a 57% YoY growth.
- Developer Loans: Offers residential construction finance and inventory finance with an AUM of ₹9,599 crore, growing by 69% over FY2023.
BHFL’s core strength lies in its diversified asset portfolio and strong distribution network. As of June 2024, it operates across 215 branches in 174 locations across India. A remarkable ₹97,071 crore AUM (Assets Under Management) speaks volumes about the company’s growth trajectory.
Key Highlights:
- Asset Mix: BHFL’s AUM is diversified, with 58% in home loans, 10% in LAP, 20% in lease rental discounting, and 11% in developer finance.
- Prudent Risk Management: GNPA (Gross Non-Performing Assets) stands at a low 0.28%, showcasing a robust asset quality management.
- Financial Strength: BHFL posted a Return on Assets (RoA) of 2.3% in Q1FY25, reflecting solid profitability.
Overview of Tata Capital Ltd:
Tata Capital, part of the Tata Group, is one of the most respected financial services providers in India, with a portfolio that spans across corporate finance, infrastructure finance, and personal loans, including home loans. While Tata Capital operates in a wide variety of financial services, its housing finance division, Tata Capital Housing Finance Ltd (TCHFL), focuses on:
- Home loans
- Affordable housing loans
- LAP
- Construction finance
Tata Capital’s housing finance division has a well-established network that supports individuals from a variety of income groups. It also has an extensive digital presence to simplify loan processing and customer support.
Key Highlights:
- Affordable Housing: A significant part of Tata Capital’s portfolio caters to affordable housing, reflecting its alignment with government initiatives like “Housing for All.”
- Strong Corporate Parentage: Tata Capital benefits from the backing of the Tata Group, one of India’s most reliable and trusted corporate entities.
- Tech Integration: Tata Capital has invested heavily in digital solutions, offering a seamless experience for its customers through online platforms.
Market Presence and Reach:
Bajaj Housing Finance has rapidly expanded since its inception in 2015, with 215 branches across 174 locations. This reach is critical for tapping into India’s growing urban and semi-urban housing markets. With a focus on the middle and upper-middle class, BHFL serves both individual homebuyers and large-scale developers.
On the other hand, Tata Capital Housing Finance has a slightly broader reach, with a strong emphasis on digital channels. Its vast network benefits from Tata’s brand strength, helping the company penetrate deeper into rural and affordable housing segments. Tata Capital’s focus on digital transformation and partnerships has made it a leader in leveraging technology for customer engagement and service.
Financial Strength:
- Bajaj Housing Finance: BHFL’s AUM of ₹97,071 crore as of June 2024 demonstrates its strong growth. The company also posted an impressive return on equity (RoE) of 14.3% in Q1FY25. Its low GNPA of 0.28% reflects superior asset quality management.
- Tata Capital Housing Finance: As of March 2024, TCHFL had an AUM of approximately ₹45,000 crore. While smaller than BHFL, it has maintained a solid balance sheet with a growing focus on affordable housing. The company’s asset quality remains stable, and it continues to benefit from its parent company’s financial strength and reputation.
Product Diversification and Target Segments:
Bajaj Housing Finance has a diversified portfolio, focusing heavily on home loans (57% of its portfolio) and LAP (10%). BHFL also caters to the developer segment with products like lease rental discounting (20%) and developer finance (11%). Its target market includes mid- to high-income individuals and corporates.
Tata Capital, through TCHFL, has a broader range of customers, focusing on affordable housing, home loans, and construction finance. TCHFL aligns closely with government schemes, providing solutions for individuals with lower incomes. Tata Capital’s strategy focuses on social inclusion and financing India’s growing housing demand.
Risk Management and Asset Quality:
Bajaj Housing Finance has demonstrated strong asset quality management, with a GNPA of 0.28% and NNPA of 0.11% as of June 2024. The company follows a conservative approach, with a 59.4% provision coverage ratio, ensuring a strong cushion for any potential losses.
Tata Capital also demonstrates strong asset quality with a gross NPA of 1.5% and a net NPA of 0.4%. Its credit cost of 0.5% is among the lowest in the industry, reflecting robust risk management practices.
Technology and Customer Experience:
Bajaj Housing Finance has steadily integrated digital channels to simplify loan processing and customer support. It has launched mobile apps and online platforms, helping customers manage their loans more efficiently.
Tata Capital has been a leader in digital transformation within the housing finance industry. Its online home loan portal provides instant loan approvals and disbursements, making the process smoother and faster for customers. Tata Capital’s strong tech integration has given it an edge in customer experience.
Financial Highlights:
| Financials (Crores) | Bajaj Housing Finance FY24 | Tata Capital Ltd FY 2024 |
| Revenue | 1996 | 18198 |
| EBITDA | 498 | 4679 |
| PAT | 381 | 3326 |
| PAT Margins | 19% | 18% |
Although Tata Capital and BHFL have similar PAT margins (18% for Tata Capital and 19% for BHFL), Tata Capital’s higher absolute figures in revenue and profits give it a much larger profit pool, making it more profitable in aggregate terms.
Valuation and Outlook:
In its recent IPO, Bajaj Housing Finance Ltd. raised ₹6,560 crore. The IPO was oversubscribed, reflecting strong investor confidence. The IPO price band of ₹66-70 valued the stock at 3.2x its post-money book value, indicating a premium for its excellent asset quality and consistent returns.
Tata Capital’s housing finance division, though not yet publicly listed, has strong backing from the Tata Group. Its growth potential remains high, especially with its focus on affordable housing and digital transformation.
| Financials | Tata Capital | Bajaj Housing Finance |
| Share Price ( as Sep 2024) | 949 | 164 |
| MCAP | 351419 Cr | 136956 Cr |
| P/E Ratio | 110 | 79 |
| P/S Ratio | 19.34 | 69 |
| P/B Ratio | 15.02 | 11.27 |
Conclusion:
Tata Capital is clearly trading at higher multiples across P/E, P/S, and P/B ratios compared to Bajaj Housing Finance. These higher multiples imply that Tata Capital is considered more expensive by the market, largely driven by the strong backing of the Tata Group, its diversified business model, and its emphasis on affordable housing. Despite having a smaller AUM compared to BHFL, Tata Capital commands a premium in the market, possibly due to its reputation, broad customer base, and strong corporate governance.
In contrast, BHFL, with its impressive growth trajectory and robust asset quality, presents a more cost-effective option for investors. Its recent IPO pricing at 3.2x post-money book value is seen as a fair valuation, making BHFL an attractive investment from a value perspective, especially given its higher return on equity (RoE) and lower risk profile.
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