LIC Housing Finance
Provision write back drives profits
HOLD
CMP: Rs 693 Target Price: Rs 680
LIC Housing Finance (LICHF) reported a net profit of Rs1.7bn for Q2FY10, better than our expectations. However, the higher profits were driven by provision write back of Rs417mn even as the operating performance was weaker with just 9.2% yoy growth in NII. The aggressive growth in advances book (32% yoy) took toll on NIMs which contracted by 47bps yoy and 2bps qoq (we expected improvement).
The asset quality improved during the quarter as the gross and net NPA declined to 1.3% and 0.6% from 1.9% and 0.9% in Q2FY09 last year.
We believe that the current valuations, at 2.2x FY10E ABV and 1.8x FY11E ABV are rich and do not leave much margin of safety. We are also wary of the pressure on RoA and RoE over FY10 which do not justify such valuations. We maintain our HOLD rating on the stock. However, we are upgrading price target to Rs680, rolling over our multiple of 1.5x one-year forward on FY11E ABV.
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