LIC Hsg Finance stock = HDFC Jr

LIC Housing Finance Ltd (LICHF) is one of the largest housing finance companies in India having one of the widest networks of 130 marketing offices across the country and representative offices in Dubai & Kuwait. It was promoted by Life Insurance Corporation in 1989 and a public issue was made in 1994. The main objective of the Company is providing long term finance to individuals for purchase / construction / repair and renovation of new / existing flats / houses.

The Company also provides finance on existing property for business / personal needs and gives loans to professionals for purchase / construction of Clinics / Nursing Homes / Diagnostic Centres / Office Space and also for purchase of equipments. The company enjoys ‘AAA’ rating from CRISIL indicating highest safety with regard to the ability to service interest and repay capital.

Life Insurance Corporation (LIC), which owns 40.8% of LICHFL, is a well-known brand (leader in the Life Insurance Sector in India) and has high safety perception. The company uses the agency network of the parent and so can potentially leverage on a huge customer base. LIC of India helps the company to raise funds in times of liquidity crunch by participating in its bond offerings. Also due to its parentage, the LICHF enjoys equally good brand recall. Further the public sector nature of the parent has helped LICHFL to follow a conservative approach in terms of loan disbursements helping to mitigate downside risks.

Update: 14th February 2010

LIC Housing Finance announced its’ results for the third quarter ending December 31, 2009. LICHF’s net profit in the corresponding quarter last year was Rs 134.33-crore. In the present quarter, the net profit of LIC Housing Finance was Rs 153.57 crore, representing a 15 per cent increase. LICHF’s total income increased about 15 per cent from Rs 766.68-crore in Q3 FY09 to Rs 880.46 crore in Q3 FY10. LIC Housing Finance showed a 14% net interest income growth along with growth from other streams.

LIC Housing Finance reported strong business growth. Sanctions registered a 72% growth to Rs 4516 crore. Strong growth was also registered in disbursements at Rs 3604 crore against Rs 1938. Strong business growth, amongst the higher in a series of several quarters, trickled into a robust credit growth of 35% as against a 26% growth recorded in Q3 FY09.

LIC Housing Finance’s loan book quality dipped on an absolute basis. The management has attributed a part of this to classification issues on account of technical issues in software migration. Provisioning on delinquent assets was higher on a low base.

Post interest rate cuts and correction in property prices (especially in big cities), the demand for housing loans is picking up. Last two months (March and April) the disbursements grew by 42% and 34% respectively for the company which indicates strong trend. Further correction in property prices coupled with easing of interest rates will boost the demand. Disbursemnts are expected to grow at a CAGR of 22% for the company over FY09-11E.

The company’s loan book is expected to grow at CAGR% of 22% over FY09-FY11E led by a drop in the interest rates and correction in property prices. Net interest margins are expected to remain stable at 3% despite lending rate cuts. The share price has shot up in the previous six weeks though current valuations of 1.1x FY11 BV are still attractive considering higher RoE’s (26% & 27% for FY10, FY11), better asset quality and huge growth potential in the housing finance segment.

The shares should be bought whenever there is a dip in the market.