Stock Review: LIC Housing Finance

After growing at a fast clip, the company is likely to take a breather and grow at a steadier pace

The share price of LIC Housing Finance has fallen from the 52-week high of `1,305 it touched on August 16. The scrip gained momentum as the company was seen as a strong contender for the new bank licences to be given by the central bank. But, this is still in the realm of speculation. Hence, the market focuses again on key operations, which also seem to be peaking.

The company's loan book has grown at a compounded annual growth rate of around 30 per cent in the past three years, much higher than the 15-20 per cent growth of its peers. Cashing on its agent network, largely recruited from among the tested LIC agents, the company has seen 60 per cent disbursals coming from this channel, say analysts. Little wonder the company saw its market share grow to nine per cent from six per cent in FY08.

However, this has started to show signs of fatigue and is expected to flatten in the coming quarters. Net interest margins fell 30 basis points sequentially to around three per cent in the June quarter. Analysts point that incremental loan yields were 9.6 per cent, much below the average lending rate of 10.1 per cent. LIC Housing offers the most competitive rates in the market and therefore remains sensitive to rate changes. There are concerns regarding the quality of assets also. Non-performing loans (NPL) were up 40 per cent sequentially in the June quarter, while the coverage reduced to 62 per cent. According to analysts at Citi Investment Research, "While its rapid growth raises concerns of sharper deterioration and needs to be watched, we believe it is most likely a seasonal trend (June quarter is historically weak) and should improve hereon." In terms of valuation, 2.5 times book value (FY11) is much above its peak of 1.5 times, a reason to be off the peak.