LIC Housing Finance (updated - 18 Aug 2010)
The share price of LIC Housing Finance has fallen from the 52-week high of `1,305 it touched on August 16. The scrip gained momentum as the company was seen as a strong contender for the new bank licences to be given by the central bank. But, this is still in the realm of speculation. Hence, the market focuses again on key operations, which also seem to be peaking.
The company’s loan book has grown at a compounded annual growth rate of around 30 per cent in the past three years, much higher than the 15-20 per cent growth of its peers. Cashing on its agent network, largely recruited from among the tested LIC agents, the company has seen 60 per cent disbursals coming from this channel, say analysts. Little wonder the company saw its market share grow to nine per cent from six per cent in FY08.
However, this has started to show signs of fatigue and is expected to flatten in the coming quarters. Net interest margins fell 30 basis points sequentially to around three per cent in the June quarter. Analysts point that incremental loan yields were 9.6 per cent, much below the average lending rate of 10.1 per cent.
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The strong traction in loan book continued to be supported by a 47 per cent jump in sanctions and a 37 per cent rise in disbursements in the half year-ended September. However, the outlook on future profitability looks challenging due to rising interest rates, high property prices and increasing competition. The company will keep renewing its recently-introduced scheme, ‘Advantage 5’ (interest rate is fixed at 9.25 per cent for five years), depending on the trend of borrowing costs.
The management is hopeful of maintaining NIMs, as 65 per cent of its loan book is floating while 58 per cent of its liabilities are fixed. LICHF recently raised its prime lending rate by 50 basis points, which will help manage the rise in interest costs. However, analysts expect margins to trend downwards over the next two years amid its high growth strategy and competition.
The stock has gained almost 83 per cent in the last one year and trades at 2.8 times its 2011-12 adjusted book value, much higher than the analysts’ target multiple of about 2.2-2.4 times.
source - business standard
LIC Housing Finance (updated - 15 Oct 2010)
The September quarter results of LIC Housing Finance (LICHF) were in line with analysts’ robust growth expectations. The lender reported a 63 per cent year-on-year jump in net interest income to `305 crore.
This was helped by robust demand for housing loans (loan book up 36 per cent) and a 49-basis-point (bps) improvement in net interest margins (NIMs) at 2.93 per cent.
Two factors – higher operating expenses and a rise in tax provisions – restricted growth in operating profit (up 58 per cent to `319.1 crore) and net profit (up 37 per cent at `234 crore). The company’s asset quality improved substantially, courtesy economic growth. Gross non-performing assets fell 60 basis points year-on-year to 0.7 per cent.
LIC Housing offers the most competitive rates in the market and therefore remains sensitive to rate changes. There are concerns regarding the quality of assets also. Non-performing loans (NPL) were up 40 per cent sequentially in the June quarter, while the coverage reduced to 62 per cent. According to analysts at Citi Investment Research, “While its rapid growth raises concerns of sharper deterioration and needs to be watched, we believe it is most likely aseasonal trend (June quarter is historically weak) and should improve hereon.” In terms of valuation, 2.5 times book value (FY11) is much above its peak of 1.5 times, areason to be off the peak.
