Accumulate LIC Housing; target Rs 278.5: Aditya Birla Money

Aditya Birla Money is bullish on LIC Housing Finance and has recommended accumulate rating on the stock with a target of Rs 278.5 in its November 2, 2012 research report.

“LIC Housing Finance’s, Net Interest Income (NII) during the quarter registered a muted growth of 5.8% YoY (0.9% QoQ) from Rs3341.3 mn in Q2FY12 to Rs3535.4 mn on the back of lower NIMs (down by 35 bps YoY, 8 bps QoQ to 2.1%). The decline in NIM was on the back of sharp reduction in the high yielding developer’s loan portfolio and higher cost of funds. The Developer Loan portfolio stood at Rs26.6 bn (3.85% of total loan book) in the current quarter as against Rs40.6 bn in Q2FY12 (7.24%) & Rs30.4 bn (4.63%) in Q1FY13, a decline of 34.5% & 12.5% respectively.”

“The management continues to maintain its guidance on NIMs at ~2.5-2.7% for FY13. We believe margins to have bottomed out and is likely to increase going forward led by higher disbursement in developers portfolio (sanctions up 30.0% QoQ) coupled with repricing of fixed rate loans (Fix-o-Floaty). In the current quarter ~15.0 bn of teaser loans got repriced. The remaining Fixed-o-Floaty book of ~ 77 bn will get repriced over the next three quarters. Besides this the bank is also planning to replace high cost bank borrowings through bonds and bring it down from current ~30% of total borrowings to ~25% in the current fiscal.”

“Although margins continue to disappoint, we believe it to rebound going forward on the back of repricing of fixed rate loans and higher disbursements to high yielding developers portfolio. Added to this release of provisions on teaser portfolio (that will come for repricing) is likely to keep the provisioning expense low going forward. We estimate LICHF to report an EPS CAGR of 25.8% over FY12-FY14E. ABV is estimated to grow at 16.6% CAGR during the same period. Considering sharp decline in margins we have slightly reduced our earnings estimate by ~3-4%. We roll our target price to September’ 13 revising our target price to Rs278.5 (Rs279.4 earlier) valuing the company at 1.8x its FY14E ABV, implying an upside of 11.2% from current levels. Thus we retain our accumulate rating,” says Aditya Brila Money research report.

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