Hold LIC Housing; target Rs 290: Nirmal Bang

Nirmal Bang has recommended hold rating on LIC Housing Finance (LICHF) with a target price of Rs 290, in its April 30, 2013 research report.

"LICHF reported good results beating our and consensus estimates. After showing dismal performance on margin front, LICHF finally witnessed an improvement in NIMs driven by lower cost of funds. NIMs stood at 2.45 percent (36 bps improvement QoQ) much higher than our expectation. Furthermore, provision write back supported the bottom line of the company. PAT increased 24.7 percent YoY and 33.8 percent QoQ to Rs 316 cr in Q4FY13. For FY13, PAT stood at Rs 1,023 cr up 11.9 percent YoY. Although corporate book continued to witness stress, improvement in the retail book more than compensated for the rising stress in corporate book and thus overall Gross NPA stood lower in Q4FY13. Gross NPA ratio declined to 0.61 percent (0.74 percent in Q3FY13) and net NPA ratio stood at 0.36 percent in Q4FY13.

Growth momentum continued in retail book driven by strong growth across geographies and unprecedented response to the new product launched – Bhagyalaxmi (lower yielding book). Going forward along with growth in retail book, Management intends to shift focus on LAP and developer loan in FY14E. We believe that higher yielding portfolio and lower cost of funds would aid in sustaining margins at 2.4 percent for FY14E.

The stock had remained under pressure in the last one quarter owing to difficulty in improving NIMs and building stress on asset quality. However, with some signs of improvement visible in the current quarter, we believe that the stock can be accumulated on decline from a long term perspective.

At CMP, the stock is trading at 1.69x FY14E and 1.42x FY15E ABV; 9.4x and 7.49x FY14E and FY15E EPS which we believe are attractive. We recommend to HOLD the stock for a target price of Rs 290 (2.0x FY14E ABV) implying an upside of 18.4 percent from current levels and accumulate the stock at any decline," says Nirmal Bang research report.

Institutional holding more than 40% in Indian cos

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