Buy LIC Housing; target of Rs 298: SKP Securities

SKP Securities is bullish on LIC Housing Finance (LICHFL) and has recommended buy rating on the stock with a target price of Rs 298 in its September 5, 2012 research report.

“LIC housing finance Limited (LICHFL) is promoted by Life Insurance Corporation of India (40.3% stake). The company operates in the middle class user segment and provides loans for homes, construction activities and also for corporate housing schemes. Around 94.9% (FY12) of the loan portfolio is derived from the retail segment and the rest from large corporate clients. The company has a strong pan India presence through 7 regional offices, 13 back offices, 188 marketing offices and 1 customer service point.”

“LICHFL’s loan book has grown by 29% over the last 5 years. We expect its loan book to grow by 23% CAGR through FY12-FY14E. This growth is expected to be backed by the increase in developer loans disbursements. At its peak in FY10 these loans contributed 10.9% of total loans but as of Q1FY13 it constituted merely 4%.We expect the share of these loans to increase to 10% in 3 years, given the low loan-to-value (LTV) of 40% as compared to 55% in case of individual housing loans and also due to higher yields of 400-450 bps as compared to individual loans given their risky nature. We expect this share to increase to 5.5% in FY13E and 6.6% by FY14E.” 

“In Q1FY11 LICHFL had introduced a new home loan product called “New Fix-O-Floaty” it offered loans at a competitive fixed rate of 8.9% upto 31.03.2012 and then its takers would be charged on the prevailing floating rate. These loans form ~19% (~Rs.120 bn) of the total loan book as of FY12. In FY13E ~Rs.100 bn are to be reprised, off which ~Rs. 8 bn have already been reprised at sub 12% floating rate in Q1FY13 (reprised ~ 250 bps above). The remaining loans are to be reprised in FY14E.We initiate coverage on LICHFL with buy rating and a target price of Rs. 298/share based on residual income model yielding a potential upside of 24% (18 months). At our TP, LICHFL will trade at an implied P/BV of 1.9x on Q1FY13 BV,” says SKP Securities research report.

Non-Institutions holding more than 90% in Indian cos

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