Buy LIC Housing Finance; target of Rs 756: KR Choksey

Q2FY17 proved to be steady quarter for LIC Housing Finance (LICHF) characterized by stable loan growth and asset quality, margins expansion and lower provisions. PAT at INR 7.91 bn (v/s 7.7 bn estimate) stood robust 20.2% Y-o-Y growth largely driven by lower than anticipated provisions (down 74% Q-o-Q, flat Y-o-Y), controlled opex (cost/income down 103 bps Q-o-Q to 14.7% ; lowest among the peers) and higher margins (at 2.68% in Q2FY17 from 2.61% a quarter ago). The overall loan growth stood steady at 15% Y-o-Y; with repayments declining albeit marginally during the quarter. While the trend in the overall disbursements stood sluggish (8.7% Y-o-Y growth as against 15%+ levels in the past quarters), the pace of non-individual loans have slowed down with these forming only 4% of overall disbursements and individual category forming 96% (up from 94% in Q1FY17).

Maintaining structured asset quality, NPAs continue to decline for LICHF with gross NPA now at 0.57% (0.59% in Q1FY17; 0.60% in Q2FY16) and net NPAs at 0.28% (unchanged) with PCR inching up higher 50%. Superior margins, stable asset quality, strong earnings visibility and discounted valuations prove to be right ingredients for the stock to get re-rated; revise TP to INR 756. MAINTAIN CONVICTION BUY.