LIC Housing Finance
14 March 2019
Update | Sector: Financials - NBFC
TP: INR600 (+17%)
Steady performance in a tough environment
Liquidity position well managed; Balance transfer pressure softens
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
Financials Snapshot (INR b)
EPS Gr. (%)
Div. Yield (%)
258.4 / 3.7
583 / 388
Our strategist recently increased the weightage of LIC Housing Finance (LICHF) in
our model portfolio. In our view, after a span of two years, the business
environment is turning favorable for LICHF. With liquidity tightening, we expect
players with stronger parentage to disproportionately benefit v/s peers.
The benefit to such players will be two-fold; (a) they will have access to larger
quantum of capital from the debt markets at more competitive rates, and (b)
lower-rated peers would now be less aggressive, thus, reducing competition as
well as balance transfer pressure.
LICHF sailed through the past quarter with relative ease owing to its parentage
and granular balance sheet (94% of loans are to individuals). It raised INR200b
from NCDs, INR90b from CPs and INR10b from deposits in the quarter. While
core home loan growth was moderate, we expect it to accelerate over the
The company has hiked its PLR five times in the past nine months, cumulating to
70bp. All retail loans are now at floating rate, so any increase in PLR will flow
through 93% of the loan book. We believe this should largely offset the rise in
cost of funds. Hence, spreads should be largely stable at 1.3-1.4% going forward.
At CMP, the stock trades at 1.4x FY20 BVPS – this is close to its decadal low of
1.1x. With steady-to-improving core home loan growth, stable spread and asset
quality, LICHF is set to deliver 1.5%/16% RoA/RoE over the medium term. Key
risks stem from the increasing GNPL ratio of the retail loan book. Maintain BUY
with a target price of INR600 (1.5x Dec 2020E BVPS).
Shareholding pattern (%)
FII Includes depository receipts
Stock Performance (1-year)
LIC Housing Fin.
Sensex - Rebased
INR200b NCDs raised in 3Q; Balance transfers pressure softens
Even as NBFCs were recovering from the ILFS shock and the subsequent debt
market freeze in 3Q, recent events with respect to some corporate groups
have again added uncertainty in the market. In such a scenario, we believe (a)
overall supply of money from debt capital markets to the sector will remain
tight, leading to lower growth but rational competition for the sector as a
whole; and (b) lower-rated peers would now have lesser access to capital,
leading to lower balance transfers for the industry as a whole. As a result, we
believe good-quality NBFCs like LICHF will be more competitive, both in fund
raising, as well as in business as compared to peers.
This is proven from the
fact that LICHF was able to raise INR200b from NCDs in 3QFY19 alone. Also,
recent CP issuance data suggests that the company is now able to borrow
short-term money (<90-day CPs) at sub-7%– i.e. below pre-crisis levels. In
addition, balance transfers, which were at an all-time high in FY18, have
declined by 25% in 3QFY19.
Research Analyst: Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 6129 1526
| Piran Engineer
(Piran.Engineer@MotilalOswal.com); +91 22 6129 1539
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.