Accumulate LIC Housing; target Rs 275: Angel Broking

Angel Broking is bullish on LIC Housing Finance (LICHF) and has recommended accumulate rating on the stock with a target price of Rs 275 in its July 25, 2012 research report.

LIC Housing Finance (LICHF) posted a weak set of numbers with net profit declining by 11.2% yoy (For 1QFY2013), which were below our estimates mainly because of lower interest income and higher provisioning expenses than estimated by us. NIMs disappoint; Disbursements to developers to pick up from here For 1QFY2013, LICHF’s loan book grew strongly by 24.1% yoy (4.1% qoq) to Rs 65,644cr. Loan growth was driven by loans to the individual segment, which grew by 28.2% yoy to Rs 62,602cr, while loans to the developer segment declined by 24.4% yoy to Rs 30,425cr. Disbursement growth to the individual segment (Rs 4,470cr) was healthy during 1QFY2013 at 28.9% yoy, while the disbursements to developer loans stood at Rs 321cr (Rs 274cr in 4QFY2012 and Rs 77cr in 1QFY2012). The margins were down 60bp yoy, primarily on account of lower share of higher yielding developer loans (4.6% in 1QFY2013 compared to 7.65 in 1QFY2012).

LICHF aims to increase the disbursements to developer loans going forward, which in our view, should give a push to the margins. Also, the loans given out under fixed-o-floaty scheme (teaser rate loans with a fixed tenure of 3 years) at a fixed rate of 8.9% (between July 2009 and July 2010) have started to re-price upwards (between 11.5% and 11.9%) and are expected to aid in margin expansion. The asset quality of the company remained stable on the gross NPA front (0.71% in 1QFY2013 compared to 0.84% in 1QFY2012), however a decline in provision coverage ratio (46.9% in 1QFY2013 compared to 58.5% in 1QFY2012) led to net NPA levels increasing from 0.35% in 1QFY2012 to 0.39% in 1QFY2013.

At the CMP, the stock is trading at a P/ABV multiple of 1.6x FY2014E ABV of Rs 156.0cr. Historically, the stock has traded at 0.8-2.1x oneyear forward P/ABV multiple over FY2006-FY2012, with a median of 1.4x, but it has been rerated over the past three years to 1.9x average. Considering that interest rates have a downward bias over the next couple of years and the company has healthy growth prospects, we recommend an Accumulate on the stock with a target price of Rs 275" says Angel Broking research report.

Non-Institutions holding more than 90% in Indian cos

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