Buy LIC Housing Finance; target of Rs 345 LKP Research

LKP Research's research report on LIC Housing Finance

LICHFs performance was strong in 1QFY21 driven by better NIMs (3.4%) due to finer cost of funds. Provision expenses (Rs565mn) stood lower leading to PAT (Rs8175mn) growth of 34% YoY and 94% sequentially. As the company is looking for stability rather than growth, the AUM growth stood at 6.1% YoY because of lower quarterly disbursement. Sovereign rating has led to reduction in cost of fund which could provide further cushion to NIMs in FY21E. The company maintains adequate liquidity with CRAR of 14%, positive ALM and ample cash in hand of Rs13bn as on FY20. The companys reported asset quality is in fine fettle with GNPA and NNPA ratio of 2.8% and 1.6% respectively.

Outlook

With moderate AUM growth in FY21E, we estimate the company’s FY21E and FY22E ROE at 10.7% and 12.2% respectively. We believe the stress emerging from moratorium book is already in the price. We value the LICHF with FY22E BVPS of ₹459 with P/BVPS of 0.75(x) and arrive at a target price of ₹345, with a potential upside of 20%. We recommend BUY.

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