EUR 120.00 For Business Accounts Only

MOSL: LIC HOUSING FINANCE (Buy)-Steady performance in a tough environment-Liquidity position well managed

LIC Housing Finance: Steady performance in a tough environment; Liquidity position well managed; Balance transfer pressure softens

(LICHF IN, Mkt Cap USD3.7b, CMP INR512, TP INR600, 17% Upside, Buy)

 

• 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.
• The company has hiked its PLR five times in the past nine months, cumulating to 70bp. All retail loans are now at floating rate, so any increase in PLR will flow through 93% of the loan book. We believe this should largely offset the rise in cost of funds. Hence, spreads should be largely stable at 1.3-1.4% going forward.
• 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).