The shares of LIC Housing Finance, the country's second largest housing finance company has seen its share price fall by almost 30% from 52-week highs. This comes at a time when the markets are once again inching to record highs, with the Sensex now close to the 60,000 points mark.
Financial performance for the second quarter ending Sept 2021
LIC Housing Finance certainly did not have a great quarter for the period ending Sept 30, 2021. The net profits of the company dived to Rs 247.86 crores for the second quarter as against Rs. 790.90 crores in the corresponding period. Net Interest Margins dropped to 2.00 per cent for Q2 FY22 as against 2.34 per cent for Q2 FY21. In fact, on most parameters the financial performance of the housing finance company was not too impressive.
Q2 FY22 Total Revenue from operations was down to Rs. 4708 crores as against Rs. 4969 crores in the corresponding period of last year. Individual Home Loan Disbursements, however, grew sharply to Rs.14,330 crores against Rs. 10373 crores, a growth of 38%.
A few other financial parameters for LIC Housing Finance
The return on equity for the company also slumped to 4.61%, as against 16.3%. The EPS also came crashing down to Rs 4.51 from Rs 15.67, in line with a drop in net profits. Following the Sept quarterly results the shares have seen a sharp under performance. Even as the markets are rallying the share price of LIC Housing Finance has been falling.
In fact, the shares have fallen from levels of Rs 542 to the current market price of Rs 372. The shares are now barely 10% away from their 52 week lows of Rs 339, hit in the month of December 2021.
Should you buy the shares of LIC Housing?
We believe that the company might be able to report a slightly better performance for the third quarter ending December, when the results are out sometime later this month. This may see some upward traction in the stock. However, to achieve consistent growth as seen in the past is not going to be easy. If we base are assumption on the quarterly performance of Sept 2021, then the EPS for 2021-22 is not going to be more than Rs 20. This makes the stock expensive at 18 times p/e. So, the profits have to surge by 15 to 20% in the coming quarters to justify the present valuations.
The home loan business has become fiercely competitive with banks also offering very good interest rates. Fortunately for LIC Housing Finance for the quarter ending Sept 30, 2021, the disbursements have been pretty good.
We recommend to buy the stock of LIC Housing Finance only on declines. If you get the stock at around that Rs 300 mark, it should be a good stock to buy.
Our take on the markets
We have not been recommending to buy stocks very often, given that the markets have once again rallied and are now close to the 60,000 points mark once again on the Sensex. In fact, we are advising investors to stay cautious as the markets are over priced at these levels.
Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.