LIC Housing Finance
QIP plans; valuations not cheap – downgrade to HOLD
HOLD
CMP: Rs478 Target Price: Rs450
LIC Housing Finance (LICHF) is likely to discuss QIP plans in its forthcoming board meeting on June 1, 2009. If the board approves the QIP plans then the agenda will be put across in the annual general meeting of the company which may be held in July 2009.
We believe that with a robust tier I capital adequacy ratio of 10% and robust RoE of 25%+, LICHF does not need fresh equity infusion at least for next 18-24 months. We see any equity dilution as marginally negative for the stock.
At the current market price, the stock is trading at 1.5x FY10E ABV and 1.2x FY11E ABV with an average RoE of 25%+. We believe that the valuations are not cheap looking at the historical 1-year forward valuations which have been at 1.2x ABV for last fourteen years and 1.5x over last five years. We downgrade the stock to HOLD keeping our price target same at Rs450.
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