Buy LIC Housing Finance; target of Rs 502: Cholamandalam securities

Cholamandalam securities' research report on LIC Housing Finance

LICHF’s loan book grew by 16.3% YoY (lower than CSEC estimate of 19% YoY) to INR 1.82tn, largely led by LAP and project loans segments which grew at 45.7% YoY and 73.1% YoY respectively. LAP’s share in the overall portfolio has grown 333bps YoY to 16.5% and that of developer (project) loans by 205bps YoY to 6.3%. The management has retained its earlier AUM growth target of 17-18% for FY19E. Disbursements saw a muted growth of 3.9% YoY to INR 127.8bn in 3QFY19, of which INR 115bn came from individual loan and INR 13bn from project loan disbursements. Sequentially, overall disbursements de-grew by 10.5%. Borrowings grew by 16.5% YoY and stood at INR 1.6tn. The borrowing mix was altered in 3QFY19, with greater dependence on NCDs (74% of total borrowings from 68.2% in 2QFY19). Whereas, Commercial Paper as a % of total borrowings, reduced to 5% from 9.2% in 2QFY19. In 3QFY19, weighted average cost of funds (WACF) inched up by 13bps YoY (in line with management’s guidance in 2QFY19).

Outlook

LICHF is expected to post a strong loan book growth (CAGR of 11% over FY18-21E) despite a high base owing to its well established branch network. Also, with 93% of the book at floating rates the company's NIMs are expected to remain in the range of 2.3 to 2.5% thereby painting a positive outlook for the company. The stock is currently trading at P/ABV of 1.2X, P/E of 7.4X FY21E. We rate the stock a BUY and revise our target price to INR 502 assigning a P/ABV of 1.4X on FY21E.

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