Buy LIC Housing Fin; target of Rs 329: Eastern Financiers

Eastern Financiers is bullish on LIC Housing Finance and has recommended buy rating on the stock with a target of Rs 329 in its July 2, 2012 research report.

“LIC Housing Finance (LICHF) is one of the largest players in the housing loan segment in India having wide network of 211 offices across the country and representative offices at Dubai & Kuwait. In addition, the Company also distributes its products through its subsidiary LICHFL Financial Services Ltd.”

“Housing finance industry is deeply under penetrated in India with 7% contribution to GDP as against 12% for China. Amongst Asian countries, India has one of the lowest mortgages to GDP ratio. It is expected that the share of housing in GDP would go up substantially in the coming years. LICHF is promoted by LIC of India, the state run insurance giant with a 40% stake. The company’s linkage with LIC gives it various competitive advantage in the form of strong brand name, ability to access funds at low cost and access to LIC’s vast distribution network in the form of insurance agents. LIC Housing Finance is planning to mop up about Rs 25,000 crore in FY13 for meeting its lending needs. In FY12, the company reported NII of Rs.1391.62 Cr, up 2% on YoY basis. The net profit for the same period stood at Rs.919.85 Cr, down 3% YoY. The net profit figure includes Rs 117.04 cr that the company reversed on account of aligning provisioning norms with National Housing Bank. However, considering the fact that LICHF has raised its lending rates recently, which is likely to improve its NIMs going forward and a likely reversal in interest rate hikes, coupled with an improving economy, translating into robust lending activities, indicates a possible brighter outlook for LICHF in the future.”

“Despite challenging environment, LICHF has shown a relatively stable performance in terms of asset quality. Gross NPA decreased to 0.42% at the end of FY12 as against 0.47% at the end of FY11. However, net NPA rose as management reversed the excess provisions. Management has indicated that they do not perceive any big risk to its asset quality, in near term. The Company has been a consistent dividend payer over the years. In FY12, the company has declared a dividend of 180%, translating into Rs.3.60 per share. At CMP of Rs 270, the stock trades at 2.05X FY13E BV & 11.06x FY13E EPS. We recommend a “BUY” on the stock with a price target of Rs 329.00, assuming a P/B of 2.5XFY13E Book-Value & P/E of 13x FY13E earnings, an upside of 22%, over a period of 12 months,” says Eastern Financiers research report.

Public holding more than 90% in Indian cos

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