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SAMVAD
SIBM, PUNE 2011
34
Company Analysis
Prof. Kaustubh Medhekar
Associate Professor, SIBM Pune
There has been lot of news about Housing Finance industry with reference to certain practices which
are not desirable in the interest of transparent management. Some newspapers even labeled it as
SCAM. Some predicted downward trend in Housing Company's share prices. Even snowball effect on
Av. Housing rates such practices are against public good & enrich only a few individuals.
Irrespective of such exceptional situations, it is must for all the stake holders to undertake Technical
Analysis/ company analysis before finalizing their portfolio of Investments.
Let us analyze, LIC Housing Finance Limited,
LIC Housing Finance Limited is the largest housing finance company in India recognized by National
Housing Bank having network of six regional offices, 126 marketing units across India and overseas
representative offices in Dubai and Kuwait. The Company was promoted by Life Insurance Corporation
on 19th June 1989. The main objective of the company is providing long term finance to individuals for
purchase/ construction/ repair and renovation of new/ existing flats/ houses.
The Indian mortgage finance market has seen some traction in the last one year. A benign interest
rate environment, enhanced job security and expectations of firm property prices have aided demand.
LIC Housing, one of the leading lenders in the Indian mortgages finance space, has seen its loan book
grow swiftly to 38 per cent in the last one year (ahead of the industry average of 13 per cent in 2009-
10). In addition, the company was able to increase its market share to 11 per cent. Notably, the
company aims to increase the share to 14 per cent in 2010-11, indicating a robust performance going
ahead.
The company reported robust growth in sanctions & disbursements. In FY10, the sanctions &
disbursements increased by 65.6% & 69.5 % respectively on the back of traction in both individual &
project segment. The company has also witnessed a sharp improvement in its asset quality. With strong
recovery efforts, it has managed to reduce its Gross NPAs from 1.07% in FY09 to 0.69% in FY10.
Even with the aggressive growth targets, the management expects the Gross NPAs to be 0.5% or lower
in FY11.
The company's annualized NIMs for FY10 declined by 25 bps to 2.7% mainly because of the
aggressive pricing of its loans during the year, which resulted in the NIMs falling in the first three
quarters of FY10 (Y-o-Y). However, sequentially there has been a marked improvement in the NIMs in
Q3FY10 & Q4FY10 on the back of re-pricing of high cost borrowings. Also the QIP issue of Rs.6.6
bn in Q2FY10 partly contributed towards the improvement in NIMs. One can expect the NIMs to
improve to 3% in FY11 on the back of lower cost of funds and higher proportion of project loans (up
from 8.8% in FY09 to 10.9% in FY10). Also, the partial stake sale of LIC Mutual Fund (17.3%),
which is expected to be reflected in Q1FY11 could take care of the incremental borrowings & support
the NIMs.