LIC Housing
Investors with some appetite for risk can accumulate the LIC Housing Finance stock with a medium- to long-term perspective.
Among housing finance companies, if HDFC is the only stock worth investing in the large cap space, LIC Housing Finance is turning out to be the same amid mid-cap counters.
This is also partly evident from the market's positive reaction given the stock's recovery ever since the market downturn in the mid-January 2008. After touching a 52-week high of Rs 403 in December 2007 and tanking to Rs 285 on January 21, 2008, the stock has bounced back to now Rs 359.
Notably, valuations still look fair at the current levels but, given the current high inflation and firm interest rate scenario, the stock appears more suitable for investors with an appetite for risk and a medium- to long-term horizon.
However, in a soft interest rate scenario, the company along with other players is well-placed to witness a higher demand for loans helped by its wide presence across the country. Its initiatives such as distribution of financial products, venture capital and construction of homes for senior citizens provide further headroom for higher growth.
Short-term: Cautiously optimistic The company continued its robust financial performance in the March 2008 quarter besides ending FY08 on a strong note.
While its net interest income grew 38 per cent year-on-year (y-o-y) to Rs 615 crore in FY08, operating profit jumped by a little over 50 per cent to around Rs 532 crore. Consequently, net profit rose by 39 per cent to Rs 387 crore even as provision for taxation doubled.
The company also reported some healthy signs on the operational front. Its disbursements and loans have grown at a robust 38 per cent and 25 per cent respectively.
Net interest margins (NIMs) have gone up by 40 basis points to 2.85 per cent and gross non performing loans (NPAs) have gone down by 87 basis points to 1.7 per cent. Net NPAs have also come down to less than one per cent.
Going ahead, the company is confident of maintaining the loan growth of close to 25 per cent in the current financial year. The company feels that the underlying demand from the user segment is quite strong. However, there is a bleak chance of some temporary slackening in demand if interest rates nudge higher.
Secondly, margin is a key parameter to watch out after the full impact of the three CRR hikes of 25 basis points each, ending on May 24 is effected. What provides some confidence though is the fact that in the last few quarters, the company was able to pass on the incremental costs to its customers and still witness robust growth.
Long-term triggers In a bid to leverage its brand value and customer base, the company has planned to set up two wholly owned subsidiaries–one for distribution of financial products such as insurance policies, credit cards, and mutual funds apart from LIC Housing Finance loans, and another for starting a venture capital dedicated for real estate projects.
Both the plans are in the planning stage and should contribute in a meaningful way but only in the longer term.
The company's wholly owned subsidiary, LIC Care Homes, which is in the business of setting up homes for senior citizens, has completed the Bangalore project while others such as Bhubaneshwar, Cochin, Jaipur, and Chandigarh are in the pipeline.
LIC Housing Finance may also go in for a separate listing of this subsidiary after the latter gains certain scale, though this is a distant possibility for now. All these three initiatives, though at a very nascent stage, will provide positive trigger for the stock and boost its consolidated financial performance in the long-term.
Well furnished While the underlying prospects for the housing finance industry remains good, LIC Housing Finance with its vast reach and strong brand value should also report robust numbers on the back of higher demand for housing loans. It has wide presence in urban areas (Mumbai, Bangalore, Delhi, Chennai, Hyderabad) and emerging cities (NCR, Pune, Jaipur).
With 115 offices servicing over 450 centres across the country, the company provides loans predominantly to salaried individuals (75 per cent of the customer profile).
In a higher interest rate scenario, the salaried individuals segment is more likely to postpone buying decisions (new customers), which could affect its loan growth in the short-term.
Thus, in the current scenario of stable but firm interest rates, entry in the stock is suitable for patient investors (time horizon of a year and even above) with some appetite for risk. Such investors can accumulate the stock, while others can enter when the interest rate cycle turns benign.
The stock trades at 1.45 times one-year forward (FY09) price to book value (P/BV). Although strictly not comparable to HDFC due to the size, LIC Housing Finance's valuation is much lesser than HDFC, which trades at 6.7 times P/BV for the same period.
Even when compared to a smaller player like Dewan Housing, the stock is attractively valued. Overall, low valuation, good track record and robust growth prospects indicate that there is scope to earn decent returns over a year's time.
Investors with some appetite for risk can accumulate the LIC Housing Finance stock with a medium- to long-term perspective.
Among housing finance companies, if HDFC is the only stock worth investing in the large cap space, LIC Housing Finance is turning out to be the same amid mid-cap counters.
This is also partly evident from the market's positive reaction given the stock's recovery ever since the market downturn in the mid-January 2008. After touching a 52-week high of Rs 403 in December 2007 and tanking to Rs 285 on January 21, 2008, the stock has bounced back to now Rs 359.
Notably, valuations still look fair at the current levels but, given the current high inflation and firm interest rate scenario, the stock appears more suitable for investors with an appetite for risk and a medium- to long-term horizon.
However, in a soft interest rate scenario, the company along with other players is well-placed to witness a higher demand for loans helped by its wide presence across the country. Its initiatives such as distribution of financial products, venture capital and construction of homes for senior citizens provide further headroom for higher growth.
Short-term: Cautiously optimistic The company continued its robust financial performance in the March 2008 quarter besides ending FY08 on a strong note.
While its net interest income grew 38 per cent year-on-year (y-o-y) to Rs 615 crore in FY08, operating profit jumped by a little over 50 per cent to around Rs 532 crore. Consequently, net profit rose by 39 per cent to Rs 387 crore even as provision for taxation doubled.
The company also reported some healthy signs on the operational front. Its disbursements and loans have grown at a robust 38 per cent and 25 per cent respectively.
Net interest margins (NIMs) have gone up by 40 basis points to 2.85 per cent and gross non performing loans (NPAs) have gone down by 87 basis points to 1.7 per cent. Net NPAs have also come down to less than one per cent.
Going ahead, the company is confident of maintaining the loan growth of close to 25 per cent in the current financial year. The company feels that the underlying demand from the user segment is quite strong. However, there is a bleak chance of some temporary slackening in demand if interest rates nudge higher.
Secondly, margin is a key parameter to watch out after the full impact of the three CRR hikes of 25 basis points each, ending on May 24 is effected. What provides some confidence though is the fact that in the last few quarters, the company was able to pass on the incremental costs to its customers and still witness robust growth.
Long-term triggers In a bid to leverage its brand value and customer base, the company has planned to set up two wholly owned subsidiaries–one for distribution of financial products such as insurance policies, credit cards, and mutual funds apart from LIC Housing Finance loans, and another for starting a venture capital dedicated for real estate projects.
Both the plans are in the planning stage and should contribute in a meaningful way but only in the longer term.
The company's wholly owned subsidiary, LIC Care Homes, which is in the business of setting up homes for senior citizens, has completed the Bangalore project while others such as Bhubaneshwar, Cochin, Jaipur, and Chandigarh are in the pipeline.
LIC Housing Finance may also go in for a separate listing of this subsidiary after the latter gains certain scale, though this is a distant possibility for now. All these three initiatives, though at a very nascent stage, will provide positive trigger for the stock and boost its consolidated financial performance in the long-term.
Well furnished While the underlying prospects for the housing finance industry remains good, LIC Housing Finance with its vast reach and strong brand value should also report robust numbers on the back of higher demand for housing loans. It has wide presence in urban areas (Mumbai, Bangalore, Delhi, Chennai, Hyderabad) and emerging cities (NCR, Pune, Jaipur).
With 115 offices servicing over 450 centres across the country, the company provides loans predominantly to salaried individuals (75 per cent of the customer profile).
In a higher interest rate scenario, the salaried individuals segment is more likely to postpone buying decisions (new customers), which could affect its loan growth in the short-term.
Thus, in the current scenario of stable but firm interest rates, entry in the stock is suitable for patient investors (time horizon of a year and even above) with some appetite for risk. Such investors can accumulate the stock, while others can enter when the interest rate cycle turns benign.
The stock trades at 1.45 times one-year forward (FY09) price to book value (P/BV). Although strictly not comparable to HDFC due to the size, LIC Housing Finance's valuation is much lesser than HDFC, which trades at 6.7 times P/BV for the same period.
Even when compared to a smaller player like Dewan Housing, the stock is attractively valued. Overall, low valuation, good track record and robust growth prospects indicate that there is scope to earn decent returns over a year's time.
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