Broker’s call: LIC Housing (Buy)

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Target: INR 425

CMP: INR 365.50

LIC Housing Finance (LICHF) posted a PAT for Q4FY13 of around Rs.1,180 crore (+146 percent qoq / +5.5 percent yoy), offering nearly 44 percent on consensus estimate. This was driven by sequential lower credit costs and margin expansion. Disbursement was respectively flat/down year-on-year, due to weaker payments in housing loans, offset by strong project loan momentum.

While the headline GS3 number (total Stage 3) improved to about 4.4%, a decrease in the Stage 3 provision coverage ratio (PCR) pushed NS3 up 10 basis points quarterly to about 2.5%. Phase 2 assets saw a significant rise of 133 basis points on a quarterly basis to 5.25 per cent due to some customers making lower payments due to the increase in monthly equal installments with higher prices. Management indicated that there were some technical issues that were already resolved during the first quarter of FY24. Accordingly, the Phase 2 assets are expected to return to a stable condition. The restructured book is currently at ₹ 748 crore 3, with most of it expected to come out of the freeze in the first quarter of FY24.

We assume coverage is on LICHF with the purchase and March 24 price target of $425/share, valuation of the company using the return on equity (ERE) method.

Key risks: asset quality shocks to the project finance book; Weak momentum in individual loans.