Centrum Broking
LIC Housing (Buy)
Target: ₹575
CMP: ₹521.95
LIC Housing Finance (LICHF) will consider an equity fund raise via preferential allotment at its ensuing board meeting on ]June 15. Our estimates suggest that this equity infusion could be priced at ₹420 per share and may range from ₹4,000-4,500 crore which would shore up tier-1 ratio to 15 per cent (currently 13 per cent).
Pre-money dilution might be 22 per cent (in previous raise, dilution was 19 per cent). At this price, pre/post money valuation would be 1.45x/1.1x FY21 ABV. Similar to the previous preferential equity issue in FY12 of ₹810 crore, subscribed entirely by LIC of India, we expect the whole issue to be allotted to LIC of India, which would raise its stake from 40.3 per cent to 46 per cent.
While CAR and funding cost would benefit following the raise, this infusion also suggests the likely provisioning that could emanate from stress recognition.
We retain our estimates but would re-visit them once we have clarity on the quantum/timing of fund raise. Remain positive on LICHF, given its focus on salaried loans and sovereign backing. Funding cost could further benefit due to the equity raise, supporting NIM.
Maintain multiple at 1.4x FY23 ABV; and target price at ₹575.