Accumulate LIC Housing Fin: Emkay Global Financial Services

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Emkay Global Financial Services is bullish on LIC Housing Finance and has recommended accumulate rating on the stock with a target of Rs 1490 in its October 14, 2010 research report.

?LIC Housing Finance (LICHF) has reported strong 63% growth in NII at Rs 3.1 billion driven by 36% growth in advances and 35bps expansion in spreads. Stable spreads/NIMs are positive surprise ?. The growth in sanctions to individuals remained strong at 28% yoy, although the D/S ratio was lower at 67% due to as LICHF funded mostly under construction properties ? The asset profile improved as the gross NPAs were down by 22% yoy and net NPAs were down 54% yoy. The gross and net NPAs stood at 0.7% and 0.1% respectively.?

?LICHF has strong growth in the balance sheet has resulted in pressure on the employee costs, the same has been mitigated by lower establishment and advertisement expenses. With Opex controlled at 13% of the net income, the operating profit grew by 59.6% yoy. The asset quality remained robust as the gross and net NPAs stood stable at 0.7% and 0.1% of advances compared with 1.3% and 0.6% in Q2FY10. On yoy basis, the gross and net NPAs have declined by 22% and 50%.?

?As we had highlighted earlier, the growth numbers have picked up and likely to go even higher in Q3FY11. Valuations at 2.7x FY12E ABV look expensive in short term. However, strong balance sheet, earnings growth keep long term story intact. Maintain ACCUMULATE with 18-mth target price of Rs 1490 valuing stock at 2.5x of average ABV for FY12E/FY13E,?

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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 .