LIC Housing Finance “Advantage” turns into “Freedom” BUY ::EMKAY

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LIC Housing Finance

“Advantage” turns into “Freedom”

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CMP: Rs205                                        Target Price: Rs250

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…Launced new product “Freedom”

LICHF has introduced a new home loan product called “Freedom” (replacing “advantatge five”), with some variation form its earlier product “advantage five”. The new product will be at varying discounts to its PLR, which currently stands at 13.75%. However customers will also be provided with a one-time option within one year of obtaining the loan to convert to a fixed rate for the next 5 years.

Wil lead to lower provisioning requirement in FY12E

The company need not have to make provision on the loans in fist year till they are floating, however next year onwards if the customer decides to convert loans into fixed they may be required to make provision for the disbursements done to the client in the earlier year. So what effectively this product has done is to shift the provision requirements by one year.

However, LICHF has not yet started providing standard asset provisions on advantage five loans arguing that they are not teaser loans like fixed-o-floaty loans.

RBI removes PSL status from bank loans to NBFC; not to impact LICHF

RBI in its monetary policy on 3rd May, 2011 has came out with the guidelines where in the loans given by banks to NBFC’s  for onlending to priority sector will no more be classified under PSL from 1st April, 2011. LICHF would not be impacted by this as it does not have any bank borrowings for PSL onlending.

Raised earning estimates by 12-16%

We have in increased our earning estimates by 12.5/16% for FY12/13 and ABV estimates by 2.6%/5.7% for FY12/13 to factor in lower provisioning requirement.

We have still taken the provisions on “Freedom” product in FY13E with an assumption that 50% of these loans may get converted into fixed rate loans.