Buy LIC Housing; target of Rs 264: Angel Broking

Angel Broking is bullish on LIC Housing Finance and has recommended buy rating on the stock with a target of Rs 264 in its February 18, 2013 research report.

“LIC Housing Finance (LICHF) reported a disappointing set of numbers for 3QFY2013, as growth in its net interest income and operating profit, came below our expectations at 11.3percent and 8.0percent yoy, respectively. Provisioning expenses jumped up to Rs32cr (as the company had to provide roughly Rs24cr on three chunky slippages on the developer loan book) and hence earnings plunged by 22.7percent yoy, a bigger decline than expected.”

“LICHF’s loan book grew strongly by 23.8percent yoy to Rs72,704cr during 3QFY2013. Loans to the individual segment grew by 26.7percent yoy, while loans to the developer segment declined by 20.1percent yoy (although higher sequentially by 6.0percent). Hence, the share of developer loans to overall loans improved slightly from 3.8percent in 2QFY2013 to 3.9percent for 3QFY2013. The margins were down 18bp yoy to 2.09percent (largely flat sequentially), primarily on account of interest reversal of ~Rs6cr on the slippages witnessed in the developer loan book. The reported cost of funds remained elevated at 9.67percent. Going forward, the Management expects to increase the proportion of developer loans to 5percent by FY2014 from the current 3.9percent, which in our view should give a marginal push to its margins.”

“We expect the company to post a healthy loan book growth of 24percent for FY2013 and 22percent for FY2014. We have however lowered our FY2013 and FY2014 PAT estimates by 3.4percent and 5.7percent, respectively, considering the expectation of moderate and gradual improvement in the NIM. Still FY2014 earnings are likely to increase by 23.6percent yoy, aided by a healthy growth of 22percent in the loan book. At the CMP, the stock is trading at a P/ABV multiple of 1.7x FY2014E ABV. Historically, the stock has traded at 0.8-2.1x one-year forward P/ABV multiple over FY2006-FY2012, with a median of 1.4x. We recommend an accumulate rating on the stock with a target price of Rs264,” says Angel Broking research report.

Public holding more than 90% in Indian cos

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