Amidst struggling realty market, investment in housing finance companies is expected to fetch decent returns in a volatile market. Huge untapped, under-penetrated housing market caters to significant growth opportunities to providers of housing finance companies. The long-term positive outlook on India's mortgage market evolves from the basic economic concept of demand and supply. Supply in the context of housing is far lower than demand, and this gap provides a huge opportunity of growth for providers of housing finance.
LIC Housing Finance ltd, with its strong fundamentals, focused approach, consistent performance & relatively cheap valuations, is definitely well poised to gain from the housing finance business.
Equity Share Capital - 85.00 Cr
No. of equity shares – 8,49,32,600
Promoter holding – 40.84%
Institutions - 42.37%
General Public – 11.54%
Market Cap – Rs. 4979 Cr
Book Value – Rs. 263
Free Reserves per share – Rs. 126
Reserves – Rs. 2149 Cr
EPS (Rs) – Rs. 62.59
Total Assets – Rs. 29,000 Cr
52 week high/low – Rs. 681/Rs. 151
CMP – Rs. 586
Company Profile:
LIC Housing Finance is in the business of home loans, commercial property loans mortgage & reverse mortgage and other loans related to house. The customer base includes general public, corporate, SMEs, builders etc.
It has a strong network with 6 Regional Offices, 13 Back Offices and 130 marketing units across India. In addition the company has appointed over 1352 Direct Sales Agents (DSAs), 7085 Home Loan Agents (HLAs) and 777 Customer Relationship Associates (CRAs) to extend its marketing reach.
The Company has set up a Representative Office in Dubai and Kuwait to cater to the NRIs in the GLCC countries covering Bahrain, Dubai, Kuwait, Qatar and Saudi Arabia. The Company has over 10,00,000 house owners who have taken loan from the company.
Performance:
For Q1 FY10, LICHFL showed very good performance, company’s total income was Rs. 782 Cr (Rs. 622 Cr) & net profit was Rs. 124 Cr (Rs. 105 Cr), 20% jump and giving an EPS of Rs. 14.58 (Rs. 12.38).
Even during FY08-09, when the economy was in recession, LICHFL has shown excellent performance in the results.
The Company generated a total Income of Rs.2903 Cr (Rs. 2165 Cr) in 2008-09, out of which, Income from housing operations comprised Rs.2880.17 Cr. The PBT amounted to Rs.726Cr (Rs. 532 Cr) registering an increase of 36.47% over the previous year and the NP was at Rs.532 Cr (Rs. 387 Cr) indicating a growth of 37.31% over last year.
Net interest margin improved by 10 basis points from 2.85 percent in 2007-08 to 2.95 percent in 2008-09. Return on equity grew by 267 basis points from 21.13 percent in 2007-08 to 23.80 percent in 2008-09. Net profit margin improved by 49 basis points from 17.82 percent in 2007-08 to 18.31 percent in 2008-09.
The Company has given a dividend of 130% i.e. Rs.13 per equity share as compared to Rs.10 per equity share (100 per cent) for the previous year.
It has a strong network with 6 Regional Offices, 13 Back Offices and 130 marketing units across India. In addition the company has appointed over 1352 Direct Sales Agents (DSAs), 7085 Home Loan Agents (HLAs) and 777 Customer Relationship Associates (CRAs) to extend its marketing reach.
The Company has set up a Representative Office in Dubai and Kuwait to cater to the NRIs in the GLCC countries covering Bahrain, Dubai, Kuwait, Qatar and Saudi Arabia. The Company has over 10,00,000 house owners who have taken loan from the company.
Performance:
For Q1 FY10, LICHFL showed very good performance, company’s total income was Rs. 782 Cr (Rs. 622 Cr) & net profit was Rs. 124 Cr (Rs. 105 Cr), 20% jump and giving an EPS of Rs. 14.58 (Rs. 12.38).
Even during FY08-09, when the economy was in recession, LICHFL has shown excellent performance in the results.
The Company generated a total Income of Rs.2903 Cr (Rs. 2165 Cr) in 2008-09, out of which, Income from housing operations comprised Rs.2880.17 Cr. The PBT amounted to Rs.726Cr (Rs. 532 Cr) registering an increase of 36.47% over the previous year and the NP was at Rs.532 Cr (Rs. 387 Cr) indicating a growth of 37.31% over last year.
Net interest margin improved by 10 basis points from 2.85 percent in 2007-08 to 2.95 percent in 2008-09. Return on equity grew by 267 basis points from 21.13 percent in 2007-08 to 23.80 percent in 2008-09. Net profit margin improved by 49 basis points from 17.82 percent in 2007-08 to 18.31 percent in 2008-09.
The Company has given a dividend of 130% i.e. Rs.13 per equity share as compared to Rs.10 per equity share (100 per cent) for the previous year.
The Net Worth of the Company stands at Rs.2234.09 Cr, showing a growth of 21.97% over the preceding year. The Book Value of Share as on 31 March, 2009 has gone up to Rs.263.04 from Rs.215.66 while the EPS has increased from Rs.45.59 to Rs.62.59.
During FY08-09, the Company sanctioned individual loans for Rs.8186.02 Cr and disbursed Rs.7354.79 Cr. This constitutes 75.11% of the total sanctions and 83.94 % of the total disbursements respectively. LIC Housing is looking at disbursements of Rs 13,000 crore this fiscal.
The total loan portfolio increased to Rs.27679.28 Cr as against Rs. 21936.41 Cr in the previous year.
The Company has reduced the gross NPA during FY08-09 to Rs.297 Cr from Rs.372.92 Cr in the last year. The gross NPA ratio has come down to 1.07% from 1.70% and net NPA ratio has also come down to 0.21% from 0.64%. The Capital Adequacy Ratio (CAR) of the Company was 13.50% as against prescribed norms of 12% by National Housing Bank. The total assets of the company is around Rs. 29,000 Cr.
The company is also efficient in managing liquidity risks. This is evident as the proportion of assets maturing in one year is similar to the proportion of liabilities maturing within one year. This aspect is extremely vital as NBFCs which have financed long-term assets through short-term sources of finance face tremendous pressure in a scenario of tightening liquidity. Hence, it is clear that LICHFL has been able to efficiently manage all kinds of risks during testing times.
Future Outlook:
The finance minister in his recent budget, with a view to boost rural housing, has increased the allocation under the Indira Awas Yojna by 63%.
Future Outlook:
The finance minister in his recent budget, with a view to boost rural housing, has increased the allocation under the Indira Awas Yojna by 63%.
The additional Rs.2,000 Cr to NHB's Rural Housing Fund for refinancing will also encourage rural housing.
The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) allocation has been increased which would help towards the housing needs of the urban poor, besides the introduction of a new urban housing scheme announced by the President.
To meet the rising demand in future, LICHFL is looking to raise up to Rs 15,000 Cr of debt in the current financial year through options such as commercial paper (CP), non-convertible debentures (NCDs) and external commercial borrowings (ECBs). The company is also looking to raise additional funds through qualified institutional placement (QIP).
Valuation:
To meet the rising demand in future, LICHFL is looking to raise up to Rs 15,000 Cr of debt in the current financial year through options such as commercial paper (CP), non-convertible debentures (NCDs) and external commercial borrowings (ECBs). The company is also looking to raise additional funds through qualified institutional placement (QIP).
Valuation:
At current price of Rs. 620, it is quoting at P/E of 9.5 against its competitor HDFC at Rs. 2362, quoting at P/E of 28.5. Even though HDFC’s earnings growth stood at 15% compared to LCHFL’s 37.3%. However, HDFC's valuations command a premium as it is the largest player in the industry and LICHFL is mid-cap company. However, LICHFL’s Price/BV is 2.23. Also M-Cap/Sales ratio is around 2.3. With the dividend of Rs. 13 per share its dividend yield comes to around 2.22.
Clearly, there is a huge gap between its valuations and earnings growth. Given such a huge gap and consistent performance in the past three financial years, it will catch investors’ fancy sooner or later. So, I think the company has a lot of value to offer to the investors with long term horizon of 3-5 years. I recommend to 'accumulate' this stock on dips.
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