Cholamandalam Securities is bullish on LIC Housing Finance has recommended buy rating on the stock with a target price of Rs 640 in its research report dated April 26, 2018.
Cholamandalam Securities' research report on LIC Housing Finance
LICHF’s loan book increased (15.1% YoY, 6.5%QoQ) to INR 1663 bn, largely coming from project loans (48.4%YoY, 24.3% QoQ) and LAP to individuals (30.6%YoY, 15.4% QoQ). LAP’s share in the overall portfolio has grown by 170bps YoY to 14.3%. Disbursements grew at a moderate 14.5% YoY (41.5% QoQ), and stood at INR 174bn in 4QFY18.This largely came from project loans segment (83.9% YoY, 131.7% QoQ). Disbursements were however weak in the individual loan segment (contributing 80% to AUM), recording a muted growth of 8.4% YoY. Outstanding borrowings stood at INR 1453bn, with 79% being funded by NCDs, 10% from banks, 5% from deposits and the rest from NHB, CP and subordinated debt. Weighted average cost of funds continued to see a downturn and stood at 8.31% (-28bps YoY, -1bps QoQ), owing to change in borrowing mix. Yield on portfolio dipped by 21bpsYoY (6bps QoQ) to 10.12%, despite strong growth in project loans and LAP segments. Consequently, NIM compressed by 48bps YoY (up 16bps QoQ) to 2.49%.
Outlook
The stock is currently trading at P/BV of 1.6X, P/E of 7.9X FY20E. The declining cost of funds and revival in yields gives a positive outlook for LICHF. Hence, we rate the stock a BUY, maintaining our target price of INR 640, assigning a P/BV of 1.9X on FY20E.
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