Hold LIC Housing; target of Rs 360: Karvy

Karvy Stock Broking`s research report on LIC Housing Finance “Despite sticky interest rate and high property prices, loan growth in the individual segment is fairly robust and we expect the share of project loan to increase reflecting in higher NIMs and yields with repricing of its bond portfolio and replacement of high cost bank borrowing with lower cost NCD’s, spread will also improve. We expect loan to grow at a CAGR of 13% over FY14- 16E with spread improvement in FY15E and FY16E. Earning CAGR is expected to be 13% over FY14-16E. ROA is healthy at 1.6% and expect it to improve to 1.7% and 1.8% in FY15E and FY16E respectively.” “We expect LICHF is expected to register CAGR of 13% from FY14 to FY16E in home loan disbursements, despite huge competition in retail home loans due to the company’s strong network & brand visibility of its parent LIC. We expect NIM to expand to 2.38% in FY15E and 2.51% in FY16E from 2.25% in FY14 amid asset re-pricing and more focus on NCD loans, which will result in decline in cost of funds to 9.9% and 9.7% in FY15E and FY16E respectively from 10% in FY14. LICHF has better asset quality with total Gross NPAs at 0.67% in FY14, which is the lowest among top five players. In the company’s loan portfolio, 96% of loan assets are in retail segment (individual loans) for which gross NPAs stood at only 0.27%.” “At CMP of Rs 319.7, LICHF trades at 1.66x FY16E ABVPS which appears to be attractive, given the expectations over higher interest income and better margins in next 2 yrs . We initiate coverage on LICHF with “HOLD” recommendation and a target price of Rs.360 per share, which represents an upside potential of 13%,” says Karvy Stock Broking research report. 

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