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January 21, 2002

Consider the following :

• A stock with a PE Ratio (FY2001) of 3 times
• Trading at a 50% discount to Book Value
• A dividend yield of 8%
• Profit growth of 17% CAGR over the last four years
• 16% profit growth in the last quarter
• Second largest player in an industry growing at 30% p.a.
• Trusted and proven management.

If this is not attractive, what is?

About the Company

LIC Housing is the second largest player in the housing finance sector with a 14% market share- next only to HDFC (52% share). In FY 2001, it disbursed 52,258 individual loans amounting to a total of Rs 15.97 bn. Its close association with LIC implies that it uses the Area offices of LIC. For instance, in FY 2001, it opened 23 extension counters under some of the large Area offices. With this, it claims to have the widest network of all housing finance companies.

The Rs 111 bn housing finance market has been growing at above 30% for the last three years driven by falling interest rates, and increased tax incentives. The prospects for the industry are also very bright as interest rates are likely to remain soft and government’s heavy focus on the housing sector is likely to keep the benefits intact, or even further increase them.

The sector is already witnessing a lot of interest with banks, especially SBI and ICICI getting into it in an aggressive way. This is likely to reduce margins, especially since banks have access to lower cost of funds. A negative that can be offset by the fact that its parent, LIC is cash surplus currently and looking for areas to deploy the same. The company’s large network and strong brand equity will ensure that it maintains its growth momentum. Fast growth of the market also means that there is enough room for major players to grow.

The valuation gap between HDFC and LIC Housing is high as HDFC trades at almost 16x FY 01 EPS and 3.5x Price/Book. Value. We believe the valuation gap should narrow over a period of time.

Technically speaking, the stock has pierced its major resistance of Rs50 and poised to move upwards sharply. Medium term targets can be Rs70, while in the next 12 months, it might hit Rs100.

Gold Digger

Contact at : Gold Digger@indiainfoline.com

5Paisa Team

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