LIC Housing Finance - Rs.156.00

Incorporated in 1989 and promoted by LIC of India, LIC Housing Finance Ltd. (LHFL), is one of the largest housing finance companies in India and only second to HDFC. The main objective of the company is providing long-term finance to individuals for purchase, construction, repair and renovation of their new or existing homes. It also provides finance on existing property for business/personal needs and gives loans to professionals for purchase or construction of clinics, nursing homes, diagnostic centres, office space etc. The company also lends to corporate bodies under different schemes for purchase/ construction of office premises for their own use, construction of staff quarters and also for onward lending to meet the requirements of employees. It also lends to builders and developers for residential and commercial projects.

LHFL possesses one of the most extensive marketing networks with 6 regional offices and 115 area offices backed by chain of camp offices nationwide, an offshore office in Dubai and registered and corporate office at Mumbai. It has a team of 875 dedicated employees apart from 5500 Direct Sales Agents and Home Loan Agents to extend its marketing reach. It has set up a representative office in Dubai to cater to NRI in Bahrain, Dubai, Kuwait, Qatar and Saudi Arabia. LHFL has so far disbursed more than Rs.25,000 cr. and has over 8,00,000 prudent house owners who have benefited by its financial assistance. Interestingly, LHFL has launched a fully-owned subsidiary by the name of ‘LICHFL Care Homes Ltd.’ for the purpose to set up and run Assisted Living Community Centres / Care Homes for senior citizens within the country. It has started its first care homes project at Bangalore in an eco-friendly self-contained retirement village situated in a suburb of Bangalore and which fetched good response from the market.

Notably, 85% of its loan portfolio comprises floating rate loans. Hence rising interest rate will have a positive impact on its spread and on its bottom-line. Although its net NPA is high at 2.80% but it is under control and will decline gradually going forward. With various fiscal benefits, aggressive infrastructure development and rising standards of living in urban as well as semi-urban areas, the future prospects of LHFL is very promising. For FY06, its total revenue grew by 21% to Rs.1,269 cr. but the bottom-line jumped by 45% to Rs.209 cr. due to better operating efficiency and lower tax provisioning. This works out to an EPS of Rs.25 on an equity base of Rs.85 cr. It declared 60% dividend compared to 50% last year which means a dividend yield of more than 4% on CMP. For FY07, it can post an EPS of Rs.28. Hence scrip is trading at a forward PE of just 5 times. This shows there is vast gap in valuation of HDFC and LHFL, which should narrow down going forward. Investors are strongly recommended to buy LHFL with a price target of Rs.230 (50% appreciation) in 6-9 months.