Buy LIC Housing Finance - Motilal Oswal

• Mkt Cap USD2.1b
• CMP Rs1,057
• Buy

LIC Housing Finance (LICHF) reported net profit of 2.1b (71% YoY growth) in 1QFY11, which is higher than our estimate of Rs1.7b. Disbursals continue to be strong – the management maintains its guidance of 40% disbursement growth during FY11. Key highlights are:

- 1QFY11 disbursals grew 40% YoY and sanctions grew 51% YoY. In FY10, disbursals had grown 70% and sanctions had grown 66%.

- Robust NII growth of 60% YoY (on a lower base), led by loan growth of 37% and 56bp YoY improvement in NIM to 3.01%.

- On a QoQ basis, NIM declined 29bp, which was partially offset by loan growth of 5%. NII declined just 2% QoQ. Reported spreads shrank 12bp QoQ to 2.24%, led by 10bp decline in yield on loans to 10.05%. Cost of funds was stable QoQ at 7.81%.

- Management expects to keep its overall cost below its current average of 7.81% and aims to sustain NIM at ~3%.

- Asset quality deteriorated sequentially, with gross NPAs at Rs3.7b v/s Rs2.6b in 4QFY10 (seasonal phenomenon). In percentage terms, gross NPAs declined to 0.92% v/s 1.5% in 1QFY10, while net NPAs decreased to 0.35% v/s 0.65%.

Maintain Buy: We upgrade our earnings estimates on the back of expectations of strong disbursals. We are revising our EPS estimates upwards by 6% to Rs93 for FY11 and Rs112 for FY12. RoA and RoE would remain attractive at ~1.9% and ~23%+, respectively, over FY10-12. The stock trades at 2.4x FY11E and 2x FY12E BV. We maintain Buy, with a target price of Rs1,275 (2.4x FY12E BV).

Source : Equity Bulls

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