Motilal Oswal Suggests Buying This Multibagger PSU Stock For 25% Return

Top brokerage firm Motilal Oswal has given a buy rating to the stock of LIC Housing Finance. The PSU stock has reported PAT at Rs. 3.05b, in 2QFY23 which grew 23% YoY, but declined 67% QoQ, driven by NIM compression of ~75bp QoQ, the elevated cost-income ratio of ~22%, and annualized credit costs of ~90bp.

Stock To Buy: Target Price

The Current Market Price (CMP) of LIC Housing Finance is around Rs. 367. Motilal Oswal has estimated a Target Price for the stock at Rs. 460. This stock has the potential to give a 25% return, in the upcoming 1 year. It is a large-cap stock with a market capitalization of around Rs. 20,481 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 367
Target Price	Rs. 460
Potential Upside	25.00%
52-week high share price	Rs. 443.60
52-week low share price	Rs. 291.75

Financials

2QFY23 NII at Rs. 11.6b was flat YoY, down 28% QoQ, while PPoP at Rs. 9.45b was also flat YoY, but down 35% QoQ. 1HFY23 PAT stood at Rs. 12.3b and grew 207% YoY. Disbursements for 1HFY23 stood at Rs. 320b and grew ~29% YoY. LICHF has strong moats in both retail mortgages and on the liability side. However, we remain skeptical on the company's ability to successfully transmit the higher cost of borrowings to its customers.

Stock Valuation

Giving a buy rating, Motilal Oswal stated, "The company has had to resort to several such retention strategies despite banks and the other large HFC peer transmitting the entire repo rate increase to their customers. This could potentially lead to margins structurally stabilizing around ~2.25%. The stock's valuation, at 0.7x FY24E P/BV, reflects the volatility in LICHF's reported earnings and the asset quality stress, particularly in its developer book. We expect a RoA/RoE of 1.2%/13% in FY24 and reiterate our Buy rating on the stock with a target price of Rs. 460."

Asset quality and NPA

There has been some improvement in the recovery through on-ground collections in retail loans. However, there was some deterioration in the asset quality in project loans. Technical write-offs include loans, which have been recorded as NPA for more than four years and have been fully provided for and written-off. Technical write-offs of Rs. 1.9b were taken on 950 retail accounts, which were fully provided for under IGAAP. As per Ind-AS, the company has to pass it through the P&L, irrespective of the fact that they were fully provided for. LICHF reported an increase in project GNPA of Rs. 5.4b, the brokerage firm mentioned.

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. 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.