Buy This Housing Finance Stock For 30% Gains, Says Emkay Global

Emkay Global has a buy call on the stock of LIC Housing Finance for gains of up to 30%. The firm has set a target price of Rs 454 on the stock as against the current market price of Rs 352.

LIC Housing Finance reported Q4 earnings of Rs11.2 bn, 45% above our and consensus estimates. The beat was driven primarily by a 17bps decline in CoF, lower-than-expected taxes and recoveries aiding the interest income. Disbursements grew by 9% qoq, resulting in assets under management growth of 3.2% qoq/8.2% yoy. While headline asset quality deteriorated with GS3 at 5.35% (Q3: 5.04%) and NS3 at 3.72% (Q3: 3.11%), core home loan GS3 improved qoq. GS3 for the developer portfolio stood at 31.8% (Q3: 27.0%) on a lower base. The restructured portfolio currently accounts for 3.1% of loans. The overall ECL provisions were 2.33% of loans (Q3: 2.35%)," the brokerage has said.
Management commentary indicates that we are at the beginning of a turnaround in the real estate cycle, with sales improving and prices rising in line with input costs. We factor in an FY22-25E AUM CAGR of ~13%, resulting in an operating profit CAGR of 13% and RoE of 13.1%.

"We retain Buy on the stock with a Mar'23 target price of Rs 450 (earlier Rs 550), valuing the firm using the excess return on equity (ERE) method. Our target price implies a Mar'24E P/BV of 0.8x. The target price reduction is driven by two factors: 1) unlike our earlier assumption of stable NIMs over the forecast period, we expect NIMs to peak in FY23 and then register a modest decline over FY24-25, resulting in moderation of RoE expectation of 13.1% vs. 14% earlier; 2) Higher cost of equity of 13.25% vs. earlier 13.0%. Key downside risks: asset quality deterioration in the non-core housing and project loans," Emkay Global has said.