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Thursday, May 28, 2009

LIC Housing Finance Ltd:-One of the best scrip to have in anyones portfolio

Scripscan:LIC Housing Finance Ltd
Traded in:Nse-bse

Story:LIC HOUSING Finance is the second-largest housing finance company in India.Most of its business comes from giving loans to individuals.The company also provides project loans to builders and developers.It is one of the oldest companies in the home loans market along with HDFC. And this shows that it has weathered ups and downs of economic cycle and has developed expertise and network necessary for the industry. It increased its share in home loans market to 7% in FY08 from more than 5% in a year earlier. This was due to an increased focus on promotional activities. The portion of floating rates loan increased last year to the extent that most of the loans are offered on a floating rate basis. This led to improvement in net interest margins (NIMs). The long-term prospects of the business are positive, as India is seeing the fastest pace of urbanisation in its recent history.More and more young people are buying houses, thanks to rising disposable incomes.The company has been on a high growth track in the past five years, as the balance sheet was expanding at a compound annual growth rate (CAGR) of more than 20%. The performance got a boost in FY08 due to widening NIMs. The impact was visible as the net profit grew by more than 40%, while the balance sheet size expanded by only 24%. This was due to a 40-basis point improvement in net interest margin, which grew to 2.85% in FY08. The company aims to maintain NIMs, as most of the loans are on a floating rate basis and it can pass on the rise in interest to the borrowers. It also expects an approximately 25% growth in business, which will translate into an equivalent growth in the bottomline, if margins remain stable. The company has a capital adequacy ratio (CAR) of 14% vis-Ã -vis the minimum required 12%. This provides headroom for further expansion in the loan book.The stock trades at a price to book value multiple of 2.2. Like LIC Housing Finance, the stocks of smaller players in the housing finance sector like Dewan Housing Finance and GIC Housing Finance also trade at low multiples. However, LIC Housing Finance is larger in scale as compared to these companies and has a better reach, which provides it better avenues of growth. The dividend yield at current prices is 2%, which makes the stock an interesting bet for even conservative investors.

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