lic housing finace ltd --strong buy

Feb 08, 2008          KRC Investment Ideas

LIC Housing Finance Ltd.

(BSE CODE:500253)


6 Months Target


Rs 284

Rs 340



LIC Housing Finance (LICHFL) was promoted by Life Insurance Corporation of India with equity participation from UTI, ICICI and IFCI. LICHFL and National Housing Bank (NHB) have been the major sources of finance. The company is engaged mainly in granting housing loans to individuals. It also provides finance to agencies engaged in construction of houses/flats for residential purposes.


  The LICHFL is the second biggest market player for housing loans. The housing loans market is perhaps the least risky segment in the financial sector. It has the largest reach in the country with a network of 6 Regional offices, 115 Area Offices, 48 Permanent Extension Counters and nearly 100 Camp Offices operating on fixed dates throughout the country. The company has established Real time online connectivity for on-tap information, the company invested significantly for inter-connectivity between branches, hubs and its corporate office. The company is having 115 branches.


  The company had promoted three companies namely, LICHFL Care Homes Limited, LIC Mutual Fund Trustee Company Private Limited and Jeevan Bima Sahayog Asset Management Company Limited.

 Major initiatives taken  by the Company include raising funds through public deposits at attractive rate of interest and terms. Review the existing lending rates in view of the change in interest  rate scenario, thereby passing the burden of increased rate to the customer. Continue negotiation with lenders for reducing overall cost of funds. Try to improve brand building and general awareness about  the  Company and also increase the overall market share. Create  additional  distribution channels to reach the  new  segment  of customers. Improvement in the existing schemes and introduction of customer-friendly products.

 With  increasing migration to urban India, housing shortage will  increase. The National Housing Policy document estimates a housing shortage of 23  mn units and the need to invest over Rs. 4,00,000 cr over 10 years.

 This is how the easy availability of mortgage financing stimulates economic growth:  evidently,  it catalyses the construction of  new  housing  units; since  construction  and  related  industries  are  labour-intensive,  they provide  significant  employment opportunities, much of   it  involving  the bottom of India's consumption pyramid.

 LICHFL has reported PAT of Rs 106.02 crore for the quarter ended Dec'07 compared to Rs 76.61 crore in the corresponding previous quarter thus, recording a growth of 38%. Despite increase in expenses, gross profit increased by 38% to Rs 134.24 crore owing to strong growth in total income that increased by 37% to Rs 551.62 crore.


 The company disbursed loans up to Rs 1652 crore (up by 49% on y-o-y) compared to Rs 1108 crore in the corresponding previous quarter. Income from operation increased by 35% to Rs 534.35 crore. Further the other income zoomed by 116% to Rs 17.27 crore leading the total income to advance by 37% to Rs 551.62 crore. 

 Other expenses advanced by 43% to Rs 35.85 crore with staff cost and advertising cost increasing by 19% and 122% to Rs 7.48 crore and Rs 10.81 crore respectively. Also the commission and brokerage increased by 43% to Rs 8.15 core. Further Provisions increased to Rs 4.21 crore compared to Rs 0.52 crore in the corresponding previous quarter. However the company was able to cut its miscellaneous expenses to an extent by 46% to Rs 3.17 crore. With interest expenses increasing my 36% to Rs 381.53 crore, the gross profit for the quarter was confined to 38% growth at Rs 134.24 crore. The Net profit increased by 38% to Rs 106.02 crore.

 LICHFL Care Homes Ltd., a wholly owned subsidiary of LIC Housing Finance Ltd., inaugurated its first Assisted Living Community Center for Senior Citizens in March 2006 at Bangalore; the third project is coming up at Bhuvaneswar. LIC Housing Finance Limited has recently entered into a Memorandum of Understanding to take a stake in LIC of India's credit card venture.


 LICHFL identified certain areas of priority in FY 2007. It has delivered on it to a considerable extent. The company has been able to reduce both the gross and net NPAs significantly. It had undertaken lots of efforts on marketing, resulting in encouraging sanction and disbursement numbers in the March 2007 quarter (Q4). Margin was also steady for most part of the year. LICHFL is taking up several initiatives in marketing and resource mobilisation in FY 2008 to enable it to further increase its market share as well as profitability.


 LICHFL has targeted loan disbursals of Rs 6000 crore in FY 2008 â€" a growth of 17%, compared with a growth of just 5% in FY 2007. In view of the strong performance achieved in the Dec. 2007 quarter and the management's confidence and marketing initiatives already taken, such ramp-up in disbursals is achievable. 


 LICHFL has taken a number of growth initiatives. The company recently launched a fixed deposit scheme to raise resources from individual depositors. This is the first time since its inception that the housing finance company has taken the FD route for mobilising funds. This will help reduce its cost as also diversify the fund base. The company increased the strength of its home loan agents, DSAs and home loan counselors by more than 20%. It has increased its corporate tie-ups with reputed organisations in the country for granting loans to their employees. The total business coming out of such tie-ups accounted for around 33% of the total retail business in FY 2007 â€" up from 25% in FY 2006.


 LIC Housing Finance (LICHFL) is one of the largest housing finance companies in India. It possesses one of the industry's most extensive marketing networks in India: six regional offices and 115 area offices backed by a chain of camp offices nationwide, an offshore office in Dubai and registered and corporate office in Mumbai. The company has a team of 875 dedicated employees. In addition, over 5,500 direct sales agents (DSAs) and home loan agents (HLAs) extend its marketing reach. Sixteen back offices spread across the country conduct credit appraisal and administrative functions.


 LIC holds a 40.5% equity stake in the company. There are good chances of LIC exiting from the business in the long run as housing finance is not its core business, nor does it offer any significant synergy. Moreover, in the hands of any other focused and aggressive player, the company can grow much faster. There is also lots of interest in the housing finance business in India due to the enticing growth potential. Thus, we recommend investors to Buy the stock for investment.
call: strong buy



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