We believe the tide has turned in favour of housing finance companies like
LIC Housing Finance (LICHF) following the recent RBI guidelines to
commercial banks to slowdown their house financing activity, and the
favourable macro environment. LICHF, with its singular focus on financing
of homes, is set to witness a surge in both volumes and profitability. We
forecast a 28% CAGR in bottom line to Rs 455 crore over FY07-09E.
ƒ Growth in advances, margin expansion to enhance profitability
The RBI’s directive to commercial banks to reduce focus on housing
finance will benefit focussed players like LICHF. We expect the company
to post a healthy 22% CAGR in advances over FY07-FY09E. Already
during H1FY08, sanctions and disbursements grew by 48% and 25%
respectively. Further, its significant exposure to retail book will help in
registering healthy yields, which we believe will reach 10% levels in
FY08E, and 10.11% in FY09E.
New initiatives to boost fortunes in the long run
LICHF has unveiled a series of initiatives. It plans to foray into reverse
mortgage; has floated a wholly owned subsidiary, LICHF Cares Homes,
and has also inked a credit card venture with its parent. With a robust
infrastructure and distribution & network channel, we believe the
company is in a sweet spot to leverage on emerging opportunities.
Valuations
LICHF's net profit grew 33% to Rs 279.1 crore in FY07 from Rs 208.5
crore in FY06. Its ROA is expected to improve to 1.8% in FY08E from
1.4% in FY06. Assuming a ROE of 18%-19%, even after factoring in the
equity dilution, we arrive at a fair value of Rs 402 per share, 1.6x its
FY09E ABV. At the current price of Rs 374, the stock is trading at 1.5x its
FY09E ABV. LICHF also has a 39.3% stake in LIC MF AMC. As on Oct 31,
2007, the AMC's AUM amounted to Rs 16,245 crores. This translates into
Rs 46 per share of LICHF. Adding all these gives us a target price of Rs
448, an upside of 20% over a 12-15 month period. A private placement
of around Rs 500 crore, expected by end of December, may provide a
further trigger to the stock.
No comments:
Post a Comment