CMP: Rs 576 Target Price: Rs 540
We recently met up with the management of LIC Housing Finance (LICHF) and came back upbeat on the business prospects. The growth in sanctions and disbursements has been in range of 40-45% for Q1FY10 driven by multiple factors like switchovers from other banks, bunch of demand spilled from H2FY09 and general pick up in the housing demand. The NPAs are much under control and likely to remain near our estimates of <0.9% at gross level for FY010E.
At the current market price, the stock is trading at 1.8x FY10E ABV and 1.5x FY11E ABV with an average RoE of 26%+. We are upgrading our earnings estimates for FY10 and FY11 by 3.2% and 4.7% respectively. The earnings upgrade would result in increase of ~2% in ABV for FY11E. The equity dilution (if the QIP goes through) will result in increment of 3.4% in ABV to Rs408. We are raising our target price on the stock to 540 valuing the company at 1.3x FY11E ABV.
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