Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Upgrade LICHF on valuations; remain skeptical of margin pressure
What happened
We upgrade LIC Housing Finance (LICHF) from Sell to Neutral, following recent
underperformance. After the previous CEO’s involvement in the recent alleged
bribery case, the stock corrected by 24% since mid-Sept 2010, underperforming
BSE Sensex by 21%. Since we initiated with a Sell on 10 March 2010, the stock is
+23% vs. +11% for BSE Sensex (12m +18% vs index +12%), as the market did
not perceive significant risk to growth, margins and/or asset quality. In recent
past, despite lower valuations, we preferred caution due to lack of strategic
clarity. Management maintains: (1) strong growth momentum would continue,
(2) confidence about maintaining spreads, despite rise in borrowing costs.
Current view
Trading at fair valuations: Our 12-m CAMELOT TP is Rs230 (up from Rs
220). We revise our PAT by -13% for FY11E due to teaser loan provisions in
Q3, FY12E/FY13E by +7%-8% on relatively higher NIMs. Stock is trading at
1.6X FY12E P/B, 7.4X FY12E P/E - 40% lower than peak levels over FY08-10
and 7%-13% vs. the median. We rate it Neutral as we believe there is
limited downside in LICHF. On FY12E, our NBFC universe is trading at avg.
2.5x P/BV, 12.7x P/E, while PSU banks are at 1.4x P/BV, 7.3x P/E.
Growth remains healthy, some strategic clarity emerging: Post Q3FY11
& our recent mgmt. meeting, likely trends: (1) Growth to remain strong. In
Q3, retail disbursements were up c.40% yoy and 9% qoq on demand from
non-Mumbai regions; (2) share of corporate loans should rise to c.12%,
after the pull-back, thereby lending support to NIMs.
Skeptical on N-T NIMs given incremental spreads & interest cycle: In Q3,
LICHF surprised positively on NIMs, benefiting from the 50bp hike in PLR in
Oct ‘10. However, near-term NIMs may see pressure as (1) incremental fixed
loans (70% of disbursements) earning 75bp-100bp spreads vs. current retail
spreads of 1.9%, (2) short-term rates still rising, +80 –100 bp since Oct ’10.
Downside risks: Lower growth. Upside risks: (1) aggressive re-pricing of
loans, (2) developments on banking license, (3) support from parent LIC.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Upgrade LICHF on valuations; remain skeptical of margin pressure
What happened
We upgrade LIC Housing Finance (LICHF) from Sell to Neutral, following recent
underperformance. After the previous CEO’s involvement in the recent alleged
bribery case, the stock corrected by 24% since mid-Sept 2010, underperforming
BSE Sensex by 21%. Since we initiated with a Sell on 10 March 2010, the stock is
+23% vs. +11% for BSE Sensex (12m +18% vs index +12%), as the market did
not perceive significant risk to growth, margins and/or asset quality. In recent
past, despite lower valuations, we preferred caution due to lack of strategic
clarity. Management maintains: (1) strong growth momentum would continue,
(2) confidence about maintaining spreads, despite rise in borrowing costs.
Current view
Trading at fair valuations: Our 12-m CAMELOT TP is Rs230 (up from Rs
220). We revise our PAT by -13% for FY11E due to teaser loan provisions in
Q3, FY12E/FY13E by +7%-8% on relatively higher NIMs. Stock is trading at
1.6X FY12E P/B, 7.4X FY12E P/E - 40% lower than peak levels over FY08-10
and 7%-13% vs. the median. We rate it Neutral as we believe there is
limited downside in LICHF. On FY12E, our NBFC universe is trading at avg.
2.5x P/BV, 12.7x P/E, while PSU banks are at 1.4x P/BV, 7.3x P/E.
Growth remains healthy, some strategic clarity emerging: Post Q3FY11
& our recent mgmt. meeting, likely trends: (1) Growth to remain strong. In
Q3, retail disbursements were up c.40% yoy and 9% qoq on demand from
non-Mumbai regions; (2) share of corporate loans should rise to c.12%,
after the pull-back, thereby lending support to NIMs.
Skeptical on N-T NIMs given incremental spreads & interest cycle: In Q3,
LICHF surprised positively on NIMs, benefiting from the 50bp hike in PLR in
Oct ‘10. However, near-term NIMs may see pressure as (1) incremental fixed
loans (70% of disbursements) earning 75bp-100bp spreads vs. current retail
spreads of 1.9%, (2) short-term rates still rising, +80 –100 bp since Oct ’10.
Downside risks: Lower growth. Upside risks: (1) aggressive re-pricing of
loans, (2) developments on banking license, (3) support from parent LIC.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
No comments:
Post a Comment