Motilal Oswal’s research report on LIC Housing Finance
Our strategist recently increased the weightage of LIC Housing Finance (LICHF) in our model portfolio. In our view, after a span of two years, the business environment is turning favorable for LICHF. With liquidity tightening, we expect players with stronger parentage to disproportionately benefit v/s peers. The benefit to such players will be two-fold; (a) they will have access to larger quantum of capital from the debt markets at more competitive rates, and (b) lower-rated peers would now be less aggressive, thus, reducing competition as well as balance transfer pressure. LICHF sailed through the past quarter with relative ease owing to its parentage and granular balance sheet (94% of loans are to individuals). It raised INR200b from NCDs, INR90b from CPs and INR10b from deposits in the quarter. While core home loan growth was moderate, we expect it to accelerate over the ensuing quarters.
At CMP, the stock trades at 1.4x FY20 BVPS – this is close to its decadal low of 1.1x. With steady-to-improving core home loan growth, stable spread and asset quality, LICHF is set to deliver 1.5%/16% RoA/RoE over the medium term. Key risks stem from the increasing GNPL ratio of the retail loan book. Maintain BUY with a target price of INR600 (1.5x Dec 2020E BVPS).
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First Published on Mar 19, 2019 02:56 pm