Buy LIC Housing Finance: IIFL

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LIC Housing Finance reported top-line growth of 32% YoY in 2QFY11, which drove profit growth of 36.8%, owing to a 49bps YoY expansion in NIM. With 36% growth in its loan portfolio and 42.9% growth in sanctions, the momentum remains with the company to meet its ambitious loan growth aspirations (~30%). Asset quality remains excellent, a testimony to the systemic improvements in the company in the last five years. Valuation, at 3.3x FY11ii P/B, is supported by an RoE of ~24% and the prospect of a banking licence (though failure to get a licence remains a risk). With Tier 1 CAR at 9%, we reckon the capital raise has been used well. If the company sticks to its core competence of medium-ticket-size plain-vanilla mortgages, executions risks are few.?

?In 2QFY11, the company?s loan sanctions grew by 42.9% YoY and disbursements were up 35.8% YoY. The loan book, at Rs 433.8 billion, grew 8.4% QoQ. At this rate, our loan growth assumption of 25% for FY11 could easily be exceeded. NIM at 2.93% was up 49bps YoY, but down 8bps QoQ, owing to a 10bps QoQ increase in cost of funds. Most of LICHF?s assets are floating-rate (barring ?fix-o-floaty? loans, which form about 35% of the total) and ~58% of liabilities are fixed-rate, so NIMs are likely to expand if rates rise.?

?At 74bps gross NPA, with 72% provisioning cover in a quarter that is seasonally the one with the second-highest NPA levels, asset quality seems to be holding up well. As gross NPAs decrease in the quarters ahead, incremental provisioning in the second half should be low, in our view. The company has made it clear in various interactions that it is keen on obtaining a banking licence. In our estimation, the company?s current valuation prices in at least some optimism on this scenario.  Supernsetips.com provide you the 99% sure shot stock market tips .