LIC Housing tumbles 5% as Credit Suisse slashes target by 36%

NEW DELHI: Shares of LIC Housing fell 5 per cent in Tuesday’s trade after foreign brokerage Credit Suisse slashed its target on the stock by 36 per cent to Rs 320 from Rs 500 earlier.

The downgrade to ‘underperform’ from ‘outperform’ came even as IDBI Bank denied reports suggesting its merger with the mortgage major.

The stock fell 5.22 per cent to hit a low of Rs 360 on BSE. IDBI Bank fell 1.45 per cent to Rs 34.

Credit Suisse said that the possibility of a merger with IDBI Bank will remain an overhang on the stock, adding that the merger could dilute positioning as an efficient mortgage financier.

Macquarie said that uncertainties have been piling up for LIC HF and talks of a merger with a weak bank can distract a lot of management bandwidth from growth towards integration. The stock is currently trading below FY21E BV and that offers some cushion, it said.

As per the media report, LIC is waiting for IDBI Bank to come out from the RBI’s Prompt Corrective Action (PCA) framework to begin exploring reorganisation.

IDBI has been kept under PCA since May 2017 when its’ non-performing loans topped 16.7 per cent.

It has now undergone 12 quarters of losses and shored up its coverage ratios sufficiently to 86 per cent, is adequately capitalised and is expected to start reporting PBT profits from next quarter, Macquarie said.

“Hence, IDBI’s exit from the PCA framework would be only 1-2 quarters away, in our view,” the brokerage said.