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Narnolia Financial
LIC Housing Finance (Buy)
CMP: ₹541.8
Target: ₹641
Valuations of LIC Housing Finance has corrected significantly from 2.8x in FY17 to 1.7x in FY19 on the backdrop of spread and growth pressure. However, with change in current scenario, we believe LICHF is rightly placed to capture the growth opportunity. Spreads are likely to improve with the ease in competitions. Lenders turning negative towards lower rated HFCs will have positive impact in LICHFC due to Parentage support and AAA credit rating. Lower balance transfer cases will improve the growth. LICHF is currently trading at 1.3x BV FY21e which seems favourable given the risk reward opportunity. We roll over our valuation multiple to FY21e BV at 1.5x to arrive at a target price of ₹641 and maintain ‘buy’.
Key risk: Rising gross non-performing assets (GNPA) in individual segment is key concern for LICHF. The abundant liquidity scenario will again pose the risk for spreads. Continued funding pressure in real estate market can also impact the assets quality.
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