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Motilal Oswal
LIC Housing Finance (Buy)
CMP: ₹510.15
Target: ₹600
Our strategist recently increased the weightage of LIC Housing Finance in our model portfolio. In our view, after a span of two years, the business environment is turning favourable for LICHF. With liquidity tightening, we expect players with stronger parentage to disproportionately benefit because of a) larger access to capital; and b) lesser competition from lower-rated peers. Hence, LICHF sailed through the past quarter with ease, raising ₹20,000 crore from NCDs, ₹9,000 crore from CPs and ₹1,000 crore from deposits.
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.
The company has hiked its PLR five times in the past nine months, cumulating to 70 bps.
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 per cent/16 per cent 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 ₹600 (1.5x December 2020E BVPS).
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