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LIC Housing Finance
Investment case: We are cautious on LIC Housing Finance (LICHF) as rising
risks do not seem to be priced in at 2.2x FY12E book. We think risks include: 1)
a slowdown in mortgage volumes due to the slowing economy, high interest
rates and high real estate prices; 2) likely pressure on NIMs as competition from
banks will remain high; 3) falling interest rates will not necessary benefit LICHF
as asset yields would also re-price downwards; and 4) continued regulatory risks
as capital requirements for housing finance companies remain more benign
compared to other NBFCs; LICHF has a low tier-1 capital at 9%, with leverage
at 12x.
Valuation: We value the stock using a residual income method. Our price target
implies 1.9x FY12E book and 8x FY12E earnings.
2012 Catalysts: The National Housing Bank could introduce higher
provisioning for developers at 1%.
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UBS India – Outlook 2012 ::Most & Least Preferred Stock Ideas for 2012
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